INSIGHTS: THE BORDER TAX DEBATE
By Guest Columnist Steve Forbes:
Chairman and Editor-in-Chief of Forbes Media.
Reprinted with permission.
Republicans in the House of Representatives are inadvertently setting a nasty political and economic trap for Donald Trump. Yes, it’s the Republicans, not the Democrats, who are ready to administer an unnecessary black eye to the new President. That’s not their intention, but it manifestly will be the result.
The vehicle for this unwitting GOP punch is a new exaction called the border adjustability tax. This levy will cost American consumers at least a trillion dollars over the next ten years. Knowing how Washington politicians calculate these things, you can bet the amount will end up being considerably more. Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.
Few people are even aware of what the Republicans are getting ready to hit them with. There has been virtually no debate or public discussion about this new, horrible tax, yet in one of those strange fits of collective, self-destructive behavior, numerous GOP lawmakers are ready to enact it.
Here’s how, in essence, this sneaky, anti-consumer tax works. Importers will no longer be allowed to deduct an item as a business expense. To simplify things, let’s say a store imports a pair of sneakers for $40 and then sells them for $50, making a $10 profit on which it would owe taxes. Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50! And who, ultimately, pays this tax? You, the consumer, in the form of higher prices or fewer choices of where you can shop. Retailers and their customers will be hit.
Many oil refiners import crude oil to turn into gasoline. This new tax will sharply raise their costs, which will spell pain when you fill up your tank. Worse, some could be forced out of business or have to sharply curtail operations, as drivers cut back on buying the suddenly more expensive fuel.
Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.
But wait, it gets worse. Another feature of this bizarre GOP scheme gives exporters a gargantuan tax break by, in effect, not taxing their export revenues. Let’s say a corporation sells a piece of machinery to Iran for $5 million, which cost only $4 million to produce. That means $1 million in taxable profit. Under the new Republican scheme, however, that $5 million received from the mullahs wouldn’t be taxable. Instead of a $1 million profit, the corporation, for tax purposes, would have a $4 million loss. Loophole doesn’t begin to describe this “tax break.”
No wonder companies like Boeing, GE and other big exporters are orgasming over this GOP “reform.”
Big breaks for big companies, higher prices for beleaguered consumers. Why are the Republicans doing this? They say the revenue raised will help finance a huge tax tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy. But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world. Democrats will someday be back in power, and they won’t hesitate to either ramp up this GOP-created tax or go for the VAT. This would be hypocritical–rip apart the Republicans over this tax, and then go on to compound their felony. A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.
Consider this astonishing fact: In the mid-1960s government spending in Europe as a proportion of their economies wasn’t much different from our own. Growth rates matched or exceeded ours. Then Europe discovered the VAT. Spending ballooned and growth slowed to a crawl, consistently clocking in at significantly lower levels than Uncle Sam’s.
The GOP should drop this tax scheme. Why create unnecessary conflict and damage our new President? Republicans shouldn’t be constrained by the Congressional Budget Office’s antiquated way of measuring the economic impact of changes in taxes. Drop the green eye shades, and go for big cuts that would turbo-charge the economy.
ON THE ECONOMY: ROCK AND ROLL
By John Dunham:
Managing Partner, John Dunham & Associates
It’s been a long time since I Rock and Rolled. It’s been a long time since I did the Stroll. Oh let me get it back, let me get it back, let me get it back baby where I come from. It’s been a long time, been a long time, been a long lonely, lonely, lonely, lonely, lonely time. Yes it has. These classic lyrics from the Led Zeppelin song Rock and Roll. Written in 1971 during what guitarist Jimmy Page described as a spontaneous jam session, the song was the encore piece for both the band’s last show, and at every Led Zeppelin reunion.
Rock and Roll is also the media’s description of the first week of the new Trump Administration, as it appears the President is dramatically changing the Washington landscape with the stroke of his mighty pen. Listening to much of the popular press, one might think they were describing Rome in August of 410, when the city fell to the Visigoths led by King Alaric (or if you watch MSNBC more like Poland in September of 1939 when German and Russian invaders crushed that country’s defenses and divided it among themselves).
While it is true that it has been a long time since the Republican party has controlled the Presidency, the Senate and the House of Representatives simultaneously, (the last time being between 2003 and 2007), one party Democratic rule has been common (20 out of the past 59 sessions of Congress) and the country has survived. This is generally due to the fact that neither of the two political parties in control of the American government are monolithic, and as the past Administration proved over and over again, one needs to build coalitions to make things happen in Washington.
Into this dominion steps the new Administration of Donald John Trump, the Queens born property developer who is now the 45th President of the United States, and is in spite of what the media has portrayed, he and his mighty pen have done little so far to actually change much in Washington. While the media has droned on and on about a flurry of executive orders and memorandum, in effect, so far, the mighty Trumpian pen has done little but set out some notices of intent, similar to what a real estate developer would do when starting the regulatory process of constructing a project in most parts of the country. In other words, while President Trump may have made a number of statements, at least so far, his actual actions have been modest.
Going through the first 168 hours of the Trump Administration, the following pronouncements have been made:
- President Trump’s first executive order, signed right after taking office, directed departments to use their authority to waive, defer, grant exemptions from or delay the implementation of any provision of Obamacare that would impose a fiscal burden on any state or cost, fee, penalty, or regulatory burden on “individuals, families, healthcare providers, health insurers patients, recipients of healthcare services, purchasers of health insurance or makers of medical devices, products and medications.” This is more of a letter of intent than an actual set of directives, as the order is so broad as to render it ineffective. Agencies are required to follow the law, and much of Obamacare is written into the Affordable Care Act, a law passed by Congress. Considering that at its core, the Executive Order would eliminate all of the taxes imposed by Obamacare, and these are written into law, it is generally not going to have much, if any, effect until Congress decides to act.
- President Trump signed an executive memorandum on his first business day imposing a temporary hiring freeze on all federal executive branch civilian employees. This is a standard policy of all incoming Administrations which allows them to get a better grasp on the bureaucracy while their appointees are being vetted by Congress. Any effect of this directive would only be temporary.
- That same day, the President issued a memorandum that reinstates the so-called “Mexico City policy,” which bans the granting of U.S. funding to international organizations that promote abortion. This is a policy change that rescinds President Obama’s executive order eliminating the policy and will have some effect on these organizations. It would not have any impact domestically.
- He also issued a memorandum that ordered the U.S. Trade Representative to pull out of the Trans-Pacific Partnership. As Congress had shown no intention to even bring this proposed treaty up for consideration, the memorandum had no net effect.
- On January 24, the president signed two memoranda related to petroleum pipelines that had been stopped by executive actions of the prior Administration. Again, these were letters of intent, as it will be up to TransCanada to decide whether or not it would resubmit plans and an application for the construction of the Keystone XL pipeline, thereby starting the regulatory process again. As to the Dakota Access pipeline, the U.S. The Army Corps of Engineers is already working with the developer to find a route suitable for all parties involved.
- During a visit to the Department of Homeland Security on January 25, President Trump signed an Executive Order instructing that department to “immediately plan, design, and construct a physical wall along the southern border,” This is another letter of intent, as Congress has not authorized any funding for this project, and while department staff can start planning, without funding authorization no border wall can be constructed. In addition, since much of the wall would need to be constructed on either privately owned land, or Parks Service land, there will be a lengthy process of eminent domain and regulatory actions before any wall can be constructed. The Order also called for the hiring of 5,000 more Border Patrol agents and the construction of new detention facilities, but again, this can only be done with Congressional authorization.
- At the same time, the President signed another Executive Order instructing the Attorney General to determine whether so-called “sanctuary cities,” are not eligible for federal grants, and instructs the Department of Homeland Security to prioritize deportations for people in the U.S. illegally who have been among other things, convicted of a criminal offense. It also calls for the hiring of 10,000 more immigration officers. Again, this order is more of a statement of intent rather than something actionable. While eligibility of some grants is determined by the Administration, most grant programs are directed to the states and are given in block form under acts of Congress. Changing these formularies, as well as funding additional immigration officers will also require Congressional approval. And the directive to prioritize deportations was already established by prior Administrations.
- On January 26, the President took a day off from signing any new actions, and instead addressed the Republican Legislative Retreat in Philadelphia. This is probably the most important action that the Administration took all week as it signaled that it was intending to work with Congress to negotiate legislation, rather than to try to work around the Legislative Branch like the prior administration.
- President Trump issued an executive order on January 27 that temporarily bans immigration from seven failed states and suspends the Syrian refugee program. This was a program that President Obama had dramatically expanded and received a lot of attention as refugees from these countries could not generally be “vetted.” He also directed the Pentagon and the State Department to create a plan for safe zones in and around Syria to offer protection for Syrians fleeing the war there. As part of the order, the President suspended the U.S. Refugee Admissions Program for three months, and to review how refugees are vetted before they are allowed to resettle in the United States.
- On January 27, the President also directed all agencies to suspend any rulemakings for 60 days and to extend the comment period for rules currently under consideration for 60 days to provide the new Administration time to review them. Again, this is a standard order issued by every incoming Administration.
- As the week closed, President Trump signed another executive order stating his support for the military. There is no direct action authorized under the order, and it is nothing more than a proclamation, like those Presidents issue to people who turn 100, or celebrate a 75 anniversary.
It’s been a long time since the country Rock and Rolled like it has under President Trump; however, these actions show that the Administration will likely be much more measured and reflective than most of the media suggests. While the rhetoric has been forceful, for the most part the actual directives coming from the White House have been inspirational at best. They establish negotiating positions that the Administration can take with Congress, but unlike the orders issued by President Obama, they do not try to go around the wishes of the Legislative Branch or to thwart existing law. It is one thing to state that Obamacare is bad, it is another to instruct agencies to violate the actual language of the law. It is one thing to say that the country should build a wall, and quite another to transfer funds from one program to another to go around the wishes of Congress and actually start building one.
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