The post-election weeks have not been easy on most Americans: Democrats see their worst post-election nightmares materialize, and Republicans still believe that the future won’t be as crazy as Trump indicates.
In terms of U.S. tax reform there has been a barrage of media reports recently, most of them pouring over the Republican tax plan from last July and Trump’s considerations for his Cabinet.
The proposal for a “border adjustment” tariff has hit the news often – apparently this is simply a 30% import duty plus no income tax deduction on the cost of imported goods. That latter element is often disregarded, but some U.S.-based companies that have their wares manufactured overseas, have already raised a red flag – see http://www.oregonlive.com/business/index.ssf/2016/12/sneaker_makers_surprise_losers.html.
“A Republican aide told Bloomberg BNA previously that the import tax provision is starting to trigger more negative attention from companies and industry groups, and members who aren’t on the Ways and Means Committee are starting to get calls complaining about how the tax could damage their business models.”
See the entire BNA article here: https://www.bna.com/koch-industries-takes-n73014448261/
So there is a significant concern for U.S. multinationals that Trump will severely constrain free cross-border trade. Also, the World Trade Organization (WTO) is likely to reject a 30% import tariff.
Republicans seem to incorrectly believe that the WTO will approve the tariff, because “adjusting the import taxation does not amount to an indirect tax” and “all other countries have an import VAT, so we can have a tariff” – obviously discounting that an import VAT is recoverable.
I wrote earlier about the nonsense behind a “border-adjusted” import (indirect) tax. I can understand that U.S. companies feel over-taxed (although in practice the effective tax rate of U.S. multinationals is minimal), but there are other solutions for tax reform.
What if this talk of a “border-adjusted” tariff is simply a precursor (or a warm-up) for a serious discussion on a federal VAT or GST? At some point, some lawmaker will probably stand up and say “Hey, this 30% tariff is not palatable for my constituency, but let’s make it so that companies can reclaim the tax – and, while we are at it, let’s allow companies to take a tax deduction for their imports as well”.
A federal VAT as a next step is perfectly acceptable for the WTO – this blog discusses good reasons why every other country has a nationwide indirect tax (VAT/GST/consumption tax).