Why Americans can’t afford to ignore the border adjustment tax

With Congress returning from Easter recess next week, the debate over the border adjustment tax (B.A.T.) rages on. The most recent claim by supporters is that it’s unfair to focus on the 20 percent tax hike on all imports—including finished products, intermediate parts, or raw materials—without also accounting for the benefits of other proposals included in the House Republican tax reform plan. 

In other words, pay no attention to the new, trillion-dollar tax behind the curtain.

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In reality, Americans simply can’t afford to ignore the impact this devastating proposed tax would have on their businesses and family budgets.

For starters, the border adjustment tax is laser-focused on importing businesses. This means that, even though there are other tax cuts in the plan, importers would face higher—and in many cases substantially higher—tax bills. These targeted companies would bear the large burden of paying for the rest of tax reform and at a price they can’t afford.

Take a state like Texas. A recent analysis from our organizations found Texas importers could owe $30 billion in new taxes, even taking a partial currency adjustment into account—an outcome that supporters suggest will happen but that many economists have rejected.  That’s nearly the entire amount that all Texas businesses paid in all federal business taxes in 2014. The average Texas importer could owe an additional $1.3 million in import taxes alone.

For businesses in industries like apparel or footwear, the border adjustment tax could be the difference between staying in business or closing up shop and laying off workers. American Apparel and Footwear Association CEO Richard Helfenbein recently warned, “Our tax rate will actually quadruple … our taxes will be higher than our profits. … You’re either going to go bust, or you’re going to raise your prices.”

Examples like this—where companies are literally taxed to death—would not be rare under a border adjustment tax. When importing businesses stand to lose so much, it is essential for lawmakers to pay attention, and to have access to research that helps them analyze each individual proposal on the table. 

And the analysis of individual provisions in tax reform should involve a single question: Will they reduce the tax burden on American businesses and consumers? If the answer is no, as with the border-adjustment tax, it should not be included. Period. Lawmakers needn’t waste their time justifying why there’s enough good policy to justify the bad—just don’t include the bad at all. 

To that, some lawmakers will argue that these bad policies are the only way to achieve the other aspects of reform. But that’s not true either. If Congress insists on revenue neutrality, Americans for Prosperity has identified a menu of more than $2 trillion in waste, inefficiency and duplication that would be more than enough to offset the trillion-dollar hike. That should be welcome news for those Republican lawmakers who have been promising for years to finally rein in an overreaching and overspending federal government.

The bottom line is that if the border adjustment tax remains part of comprehensive tax reform, Americans will feel its impact. With a new 20 percent tax on imported essentials like food, clothing, gas, and school supplies, these Americans will see their budgets tighten even further—too far for many already struggling to make ends meet. 

This is the regressive nature of the border-adjustment tax, hitting those who already spend a disproportionate amount of their take-home pay on life’s necessities. This is precisely why it is important to look at what the tax could do to particular businesses and particular Americans—impacts that aren’t clearly visible in the rosy outlook that supporters are pushing.

We strongly support comprehensive tax reform, and there are many proposals in the House Republican plan that will grow our economy, make our tax code more simple and fair, and improve the lives of ordinary Americans.

But the border adjustment tax would undermine tax reform efforts—despite all the other positive provisions in the House plan, importing businesses, and ultimately consumers, simply can’t afford to shoulder this massive burden. Congress still has time to scrap the border adjustment tax and pursue better options to offset the tax revenue that will be lost when it reforms the tax code. They can start by cutting spending.

Comprehensive, pro-growth tax reform is the key to jumpstarting our economy after eight years of stagnation—it just shouldn’t come at such a high price for those who can’t afford it. 

Mary Kate Hopkins is a senior policy analyst at Americans for Prosperity. Alan Nguyen is a senior policy adviser for Freedom Partners Chamber of Commerce.


The views expressed by this author are their own and are not the views of The Hill.