Border adjustment is the glue that keeps tax reform together
© Getty Images

One of the simple truths about the election of President Trump to be the 45th president of the United States is a fact he exposed, for the first time in a generation, that millions of Americans that live in the heartland have been sacrificed on the altar of internationalism, cronyism and corporatism.

Tax reform is going to be an epic battle in the swamp of K Street in Washington, pitting special interest versus special interest. The border adjustment tax may end up being the glue that keeps the plan together.

Along the Appalachian Trail lies the vestiges of economic destruction: burned-out buildings, empty factories and unemployment lines. Much of the ruin has been caused by policies instituted by Washington politicians who remain clueless as to why everyone in America isn't as happy or prosperous as those living around the Beltway.

Voters want policies that will bring jobs back the United States.

Trump famously pointed out the decline in American manufacturing when he said on the campaign trail, "It used to be cars were made in Flint and you couldn't drink the water in Mexico. Now cars are made in Mexico, and you can't drink the water in Flint, but we’re going to turn this around."

There are two ways to turn this around.

One, a massive lowering of the corporate income tax, which will stop punishing companies for remaining in the U.S.

Two, by moving forward policies that reward domestic manufacturing of goods, including the innovative use of 3-D printing and other advanced manufacturing techniques.

ADVERTISEMENT
For the inside-the-Beltway crowd, such talk is considered "dark" or "foreboding," but for many American voters — some of whom have voted Democrat for generations — it is honest, straight-talk hitting the reality they live in everyday. And to the shock of many, Trump means what he says and he intends to turn the fortunes of the unfortunates around.

 

A core component of the president's plan to "hire Americans and buy American" is the establishment of a border adjustment tax. The proposal has drawn opposition from some academics who are critical of Trump plan to shift the tax system to a destination-based tax. These same critics ignore the fact that the American tax code, along with a plethora of regulations and red tape, has simply incentivized American companies to ship jobs and facilities overseas while other competing countries do exactly the opposite.

Trump wants to normalize trade taxes because, right now, our trading partners tax American goods exported, but foreign goods are not taxed when imported. That does not make much sense. Mexico, for example, adds a 16 percent tax American companies must pay when bringing goods south of the border, but there is no corresponding tax when Mexican companies ship goods in the United States.

Also criticizing the plan — and lobbying Congress to oppose the tax — are Fortune 500 companies such as Wal-Mart. These companies have been the beneficiaries of the very thing the bill seeks to fix: the massive migration of jobs and manufacturing overseas. Consumers may get marginally cheaper goods, but the long-term harm to the U.S. economy by allowing unbalanced trade policies is large.

Blindly clinging to "free trade" positions might make sense in the think-tank ivory tower or in the boardroom bubble, but this thinking is of little consolation to the men and women who have lost their jobs on the assembly line or in the textile plant. It simply makes common sense to lower corporate taxes and make up some of the tax dollars lost by shifting the tax system to a destination-based tax, balancing what other nations pile on U.S.-made goods.

The reality is that the current system places American companies at a disadvantage, and that is ultimately bad for everyone. Creating equity for American business is far from a liberal concept. In fact, corporate tax reform and parity with other countries' rates has been at the top of conservatives' wish lists for decades.

The Trump plan will normalize trade taxes with our competitors, creating a level playing field while encouraging companies to stay in the United States. There will be no need to repatriate foreign profits of American companies if the tax code is modified to allow companies to remain home in the U.S. with a lower corporate tax rate.

One of the strongest arguments for the border adjustment provision is that it may end up being the linchpin for comprehensive tax reform. In other words, if the border tax goes down in flames, the entire tax reform effort is likely to also crash and burn. If Congress attempts to massively lower tax rates for corporations and does not find some balancing increase to make up some of the lost revenue, then there is little chance the bill can pass.

The border adjustment provision balances the revenues lost by lowering the corporate income tax while punishing American companies that flee the United States to hire cheap foreign labor.

American corporations have become shackled by our government. High corporate taxes coupled with massive regulations have put American competitiveness behind the eight ball. A comprehensive tax reform bill that reducing tax and regulation burdens and levels the trading playing field with our competitors, will make America great again.

Daniel Horowitz is an independent consultant specializing in public policy strategy, coalition building and development. He has previously served as staff in the U.S. House and Senate and as the presidential appointee in charge of policy at the U.S. Small Business Administration.


The views of contributors are their own and not the views of The Hill.