Newspaper article St Louis Post-Dispatch (MO)

Border Tax Debate Pits Theory against the Real World

Newspaper article St Louis Post-Dispatch (MO)

Border Tax Debate Pits Theory against the Real World

Article excerpt

Much of what America's retailers sell is made overseas, so it's not surprising that they fiercely oppose a Republican tax plan that would penalize imports.

What may be surprising is that some economists say the so-called border adjustment tax wouldn't hurt them. The tax mechanism would add 25 percent to the effective price of an imported T-shirt or bottle of wine, but economic theory says the value of the dollar would rise to compensate.

The retailer could buy more yuan or pesos or euros with the stronger dollar, so in theory its overall cost wouldn't change.

Conversely and, again, in theory exporters such as Boeing and General Electric wouldn't gain an advantage. They'd get a tax break on overseas sales, but foreign-exchange movements would offset the advantage.

The border-adjustment tax, as proposed by House Speaker Paul Ryan and others, would be a new way of collecting corporate taxes. A 20 percent cash-flow tax would replace the current corporate income tax, with its 35 percent statutory rate and maze of deductions.

The tax would apply to a company's revenue minus all expenses, whether for wages or raw materials or capital investment. Exported products would be deductible, but imports wouldn't. That's why big retailers, oil refiners and car dealers don't like the proposal: They fear a higher after-tax cost on everything they buy overseas.

In other words, they don't believe the economic theory. The National Retail Federation says the average family would pay $1,700 more annually for things such as food and clothing.

President Donald Trump hasn't said whether Ryan's border- adjustment proposal will be part of the tax plan he expects to announce soon. Trump dismissed the idea in January as too complicated, but his aides suggested days later that it might be a way to pay for a wall on the Mexican border. …

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