What
if Paul Ryan and Kevin Brady get their way and the border adjustment tax reform
bill goes to the Senate for approval? (AP Photo/Susan Walsh)
By RICK WOLDENBERG • 3/7/17 7:00 PM
Speaker of the House Paul Ryan's
proposed border adjustment tax has been condemned by a wide range of
industries. Importers and small businesses are screaming about taxes exceeding
earnings under the plan. Our family business develops its educational toys here,
but makes them overseas and will be hammered by the bill. Despite the strong
resistance, House Republicans relentlessly push for this tax on imports.
I wonder how clearly House
leadership thought this through. What if Ryan and Ways and Means Committee
Chair Kevin Brady, R-Texas., get their way and the border adjustment tax reform
bill goes to the Senate for approval? What happens if the BAT becomes law?
Be careful what you wish for.
Republicans plan to use the Senate
"reconciliation" process to pass tax reform with a majority vote to
avoid the risk of a Democratic filibuster. For technical reasons, the Obamacare
repeal must come first, and a 2018 budget must be fashioned and passed. The tax
bill itself also must pass "dynamic scoring" at the Joint Committee
on Taxation. This all takes time.
When tax reform finally arrives
sometime in the summer, House members will already be gearing up for midterm
elections. Tax reform will be a big factor in the election, just like the
repeal of Obamacare. Will members vote to raise taxes on importers? Importers
are a big constituency in every congressional district, employing tens of
thousands. Taxes and healthcare may decide the midterms.
This is high stakes poker, and the
precedent is worrisome. In 1994, the House passed an energy bill, known as the
"BTU tax" under pressure from President Clinton, only to see the bill
die in the Senate. Democrats lost the House in the 1994 midterms as voters took
revenge. This is known as "getting BTU'd." It seems likely that
importers will respond if the border adjustment tax plan moves forward.
Will House members be insulated
from voter rage if Ryan's plan gets through the Senate and is signed into law?
House Republicans should fear this outcome, too. Economists promise the BAT
will push the dollar up. As a result, exporters may see revenues shrivel as
American goods are priced out of the market. The BAT tax break on exports won't
be worth much if there aren't any exports.
Compounding taxpayer misery,
importers will be forced to impose huge price increases. Price increases will
be a survival strategy and won't be matched by wage increases, squeezing
consumers. Importers are also likely to cut spending and lay off workers. A
recession could easily result. Wildly inequitable tax bills will hit companies;
the lucky ones will pay nothing on high earnings, while others will face
unconscionable tax burdens.
And who will be blamed for this?
House Republicans should think this through.
It won't stop there. The BAT
likely violates World Trade Organization rules and will trigger a response from
other countries. While pundits expect a WTO lawsuit decided over years,
retaliation is much more likely. The BAT double taxes imports from other
countries and eliminates taxes on our exports. Our trading partners may decide
two can play at this game. What if they also impose a BAT? Dueling
self-destruction will follow.
Voters may ask themselves whether
we needed this trade war. The U.S. economy seemed to be recovering nicely
without the BAT. As job losses mount and prices rise, House Republicans might
find it hard to defend that "yes" vote and get re-elected.
House Republicans made this misery
themselves. To right the ship, they need to drop the BAT and find another way
to make the U.S. more attractive to businesses.
Perhaps they should start by
cutting spending in a meaningful way to pay for lower taxes. The voters might
applaud this common-sense approach. Voters may not be as forgiving of the
parade of horribles that a border adjustment tax would bring.
Rick Woldenberg is CEO of
Learning Resources, an educational toy company based in Vernon Hills, Ill. Learning
Resources employs 150 people in the U.S. and overseas. Woldenberg blogs
at www.BorderAdjustmentTax.com
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