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Border tax is reverse redistribution

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Last week, House Speaker Paul Ryan (R-Wis.), a proud defender of the free market, went through great pains to make the case for a border adjustment tax. He knows that the entire Republican budget blueprint hinges on this provision because it is the only way to pay for massive tax cuts. The problem is that working families and the middle class will foot the bill.

House Republicans want to impose an across-the-board 20 percent tax on all imports to the United States, while exempting exports from the tax. Everyday purchases such as gas and food will cost more, as will buying a new cellphone or new clothing.

{mosads}This GOP proposal is reverse redistribution. It is taking money out of the pockets of middle-class families to pay for a $1 trillion tax cut for the wealthiest individuals and corporations. 

The entire GOP plan hinges on the assumption that these increased costs will be offset by a stronger dollar. There is a good chance this will not happen. For example, if other countries implement their own tariffs and taxes in response to this U.S. policy, the dollar will not appreciate. Japan implemented a similar policy a couple decades ago and the Yen did not appreciate as expected. Also, most economists believe it could take up to five years for any meaningful appreciation to come about. 

Middle class families cannot take the risk and pay more for everyday items for five years in the hopes that this financial experiment will eventually work. Do we need a reminder about the last time we took a risk on a 20 percent tax on imported goods? The Smoot-Hawley Tariff Act of 1930, which President Reagan often cited as the main culprit for the Great Depression.

House Republicans mistakenly believe that a border adjustment tax will facilitate exports. But as economists like Paul Krugman have detailed, a border adjustment tax does not give a nation a trade advantage.

If anything, the GOP plan could hurt our exporters who will face retaliation. The European Union is already preparing a potential case; arguing that the Republican version of a border tax adjustment, which allows only dedications for wages paid in the U.S., violates World Trade Organization rules. America helped build the WTO and a stable financial system, dating all the way back to our post-World War II leadership at the Bretton Woods Conference in New Hampshire. As the leader of the free world, the U.S. needs to provide greater stability for global markets instead of throwing bombs to disrupt them.

There are other ways to keep companies and jobs in the U.S. We must end deferrals so companies have to pay tax on their foreign earnings. The Commerce Department should crack down on currency manipulation. We also should consider imposing, in targeted circumstances, an import carbon tax for environmental costs or a tax to combat dumping, both of which would be compliant with WTO rules.

As a congressman, whose district includes globally recognized technology companies and who has written about the need to bring American jobs back to the areas of the country that need it most, I am eager to have these discussions with my colleagues.

Now is the time to have a thoughtful debate on how to change tax laws to incentivize corporations to create jobs here at home. But it shouldn’t be a sledgehammer approach that comes at the expense of working Americans who are facing the squeeze of stagnant wages and rising costs. The American consumer cannot afford to finance massive tax cuts for the investor and executive class. 

Rep. Ro Khanna represents the 17th District of California in Silicon Valley.

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

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