Taxing imports as a way to make U.S. companies more competitive with foreign factories will hurt consumers -- and isn’t the best way for the federal government to chip away at a trillion-dollar deficit, according to Barron’s magazine.
Republicans who have proposed the “border adjustment tax” should focus on cutting spending, eliminating corporate welfare and cutting other taxes as a way to boost the economy and shrink the deficit, Barron’s says.
“The BAT is a bad idea, and it should be scrapped,” the magazine says. “If all corporate welfare were cut from the budget, as much as $100 billion a year could be saved, about matching the total expected from the BAT.”
The BAT is part of a plan by Speaker of the House Paul Ryan to change the tax code in a sweeping overhaul. The levy is aimed at boosting U.S. factory production by taxing imports while exempting U.S. companies from taxation on their export revenues.
The Trump administration should listen to economists like Art Laffer, who for 40 years has advocated cutting the income tax as a way to give people incentives to be more productive. Barron’s cites studies of countries in the Organization for Economic Co-operation and Development that lowered tax rates while boosting collections as their economies grew.
“Corporations don’t pay taxes; only people do,” Barron’s says. “And there is a tendency to forget that if a corporation nets more profits as a result of a lower tax, those funds will soon take the form of salaries, dividends, and capital gains, and will be taxed in those forms.”
Retailers like Wal-Mart Stores Inc. and Target Corp. are especially opposed to the BAT, saying that its costs will have to be passed onto consumers who will see their spending power get pinched.
“The BAT would bring uncertainty and disruption to the U.S. economy, making it hard to predict whether it really would raise $100 billion annually in revenue,” Barron’s says. “The basic idea is that, because the U.S. imports more than it exports, the export exemption would be more than offset by hitting imports hard.”
The magazine recommends that President Trump focus on his campaign pledge to “drain the swamp” of special interests that lobby for favored treatment from Washington.
“Trump should repeat his objections to a border adjustment tax that would favor the interests of some businesses over others,” Barron’s says. “He can help make U.S. corporations great again by weaning them off subsidies and reducing their tax burdens.”
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