Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Proposed Border Tax Would Derail President's Proposals to Reduce Trade Deficits
Our State retail sales taxes are border taxes and are not imposed on exports. Under international law, retail sales taxes and value-added taxes can be exempted from and deducted from exports without violating the rules against dumping, defined as selling abroad at lower price than sales at home. The proposed border tax seeks to impose a 20% tax on all imports. Under international law, the border tax may not be considered a sales tax and therefore might not be deductible. The issue will be decided in the courts which will take years. Congress could pass a value-added tax which would be deductible, but popular opposition to a sales tax at the federal government level would prevent it ever from passing. The border tax is a modified value-added tax. Under the plan, companies wouldn't be able to deduct the cost of imports from their revenue, a move that today enables them to lower their overall tax burden. At the same time, exports and other foreign sales would be made tax-free. The plan would operate like a tax on the trade deficit and raise about $100 billion per year which could help pay for lower income tax rates.
Congress could pass a 20% value-added tax, which amounts to a 20% retail sales tax, but there is no way such a proposal could pass the Congress or be signed by any President in his first term. The border tax is a sort of value-added tax; after all, the value of goods is the sum of value-added. Value-added is the sum of wages, profits, interest, and rent incurred in the course of producing goods and services, which equals the price of the goods and services produced. The IMF for decades has been promoting the value-added tax, concealing the fact that it is equivalent to a retail sales tax to make it easier to be enacted.
The border tax falls on all our trading partners, even those with which we have trade surpluses. Why would we want to hurt them? And the border tax raises the prices of all imports not merely those from countries with which we are experiencing huge deficits. It is no secret who they are. The U.S. trade deficit in 2016 amounted to $734.3 billion. Our trade deficit with China was $347.0 billion, Japan $68.9, Germany $64.8 billion, billion, Mexico $63.2, Italy $28.5, South Korea $27.7, billion India $24.3 billion, France $15.8 billion. The top 5 accounted for 42.4% of the total deficit. We had trade surpluses with Hong Kong of $27.5 billion, the Netherlands of $24.2 billion, Belgium $13.9 billion, with Singapore of $9.1 billion, and Chile, Brazil, and Argentina $12.1 billion. There is no reason why we should impose tariffs or other barriers on our trade with countries with which we have a trade surplus.
Pres. Trump to his credit has expressed opposition to the border tax. He favors reaching an accord with those countries wich which the U.S. is experiencing huge chronic trade deficits. Failing such an accord, we recommend single-country- variable tariffs which rise as the trade deficit increases and falls and trade becomes more balanced. We proposed such a tariff, called the Scaled Tariff, in our book Balanced Trade published in 2014.
The border tax is a bad tax and should not become law.
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