Border Tax Equity Act wouldn't impose VAT, supporters say

A bipartisan bill suggesting a new tax on imports to close the U.S. trade deficit wouldn't resort to a new value-added tax (VAT), according to its supporters.

While some of the Border Tax Equity Act's past supporters and a Hill story Monday said the new proposed border tax on imports was similar to a VAT, current backers said the two taxes aren't the same.

"If the bill's supporters advocated instituting a VAT, the legislation would have included a VAT," according to the American Manufacturing Trade Action Coalition (AMTAC), a DC-based group that has pushed for the bill.

The legislation, introduced by Rep. Bill Pascrell (D-N.J.) and co-sponsored by five House Democrats and five House Republicans, calls on the U.S. Trade Representative to negotiate a way to close trade imbalances with countries that use a VAT, which is levied at each stage of production of a good and is used by most industrialized nations. Under the legislation, if those negotiations don't work, a new tax would be placed on imports from those VAT countries. Revenue from the new tax would go to U.S. companies to offset subsidies that VAT countries' manufacturers get from their nations' VAT systems. But unlike a VAT, the new border tax would only be levied on imports as they entered the country, not at different production stages.

An aide to Rep. Walter Jones (R-N.C.), a co-sponsor of Pascrell's bill, said backing the legislation shouldn't be confused with backing a VAT, which has been derided by Republicans as gateway to bigger government. The Republican National Committee has pounced on statements by White House adviser Paul Volcker suggesting that a VAT or other new taxes might be needed to cut huge deficits.

When Republicans such as Sen. George Voinovich (Ohio) and Rep. Duncan Hunter (Calif.) have suggested that policy makers look at a VAT or similar consumption taxes, they have said it should be used in place of the income tax and not in addition to it.