“The Mission Of The American Desk Will Be To Protect The Economic Interests Of The American Worker, And The National Interests Of The United States. It’s Going To Be America First.” – Donald J. Trump
The 'Border Adjustable' Tax Plan
The plan would radically change the structure of business taxation by imposing a 20 percent tax on all imports and providing a special exemption for all export-related income. This approach, known as "border adjustability," is part of the plan to create a "destination-based cash flow tax" (DBCFT).
Ways and Means Committee Chairman Kevin Brady (R-TX): “For decades, American companies, large and small, have been competing with one hand tied behind their backs thanks to our unfair, outdated tax code. American jobs are being lost to foreign countries and U.S. companies are urged to move their manufacturing plants, new technologies and headquarters overseas. Whole communities have been devastated as good-paying jobs continue to leave the U.S.
Today, “Made in America’ products and services are at a tax disadvantage here in America and around the globe. That’s because foreign competitors like China, Europe, Mexico and Canada all adjust their taxes at their borders – adding taxes to American-made products and taking taxes off their own. Because America doesn’t border adjust, we lose both here and abroad.
Shockingly, this means Chinese steel is cheaper here in the U.S. than American steel. Mexican beef and autos are cheaper than American beef and autos. Foreign oil is cheaper than American oil. This tax disadvantage on “Made in America” products and services can easily exceed 20 percent – destroying true competition. Worse, it often means the best location for a U.S. company to sell to America is overseas. Why accept such an unfair and job-killing tax code?"
"House Republicans are going bold in business tax reform. We vault America back into the world lead by moving from the current income tax based on where companies produce to a simpler cash-flow tax based on where company products are consumed.
We are also proposing the lowest tax rates on local businesses in modern history, permanent repeal of the AMT and death tax and the first-ever immediate write off of all new investment in buildings, equipment, software and technology.
And while it’s new to America, border-adjustability is used throughout the world to give our foreign competitors a big advantage over the U.S. We match them, not with a hidden VAT, but with a simpler, smarter cash-flow tax.
Understandably, some companies that import a lot of foreign products have concerns. Taxing equally foreign and “Made in America” products is a big change. I’m confident, though, because in more than 100 cases worldwide when border-adjusted taxes were enacted by our foreign competitors, the value of currency adjusted efficiently, lowering the costs of imports and keeping prices low for consumers.
It’s time to finally end the tax on “Made in America.”
(Rep. Pascrell Press Release)
Sander Levin (D-MI): The Republican blueprint would slash the domestic corporate income tax rate to 20%, allow for immediate expensing for investments, and reduce the small business income tax rate to 25%. It would also shift the current system to a territorial system of taxing foreign income of U.S. multinationals without any word on how the U.S. would protect itself against base erosion. Layered on top of the rate reduction and a move to a territorial system is an adoption of 'a destination-basis tax system,' which would be achieved by providing for border adjustments exempting exports and taxing imports. Indeed, what the Republicans have included here is a key feature of a VAT, except that the blueprint goes through pains to insist such proposal is not a VAT. Instead, they refer to it as a shift to a consumption-based tax system, with no detail of what that consumption-based tax system looks like, and no detail of how that system would impact consumers and businesses.
"The border tax adjustment would work by denying US companies their current ability to deduct import costs from their taxable income, meaning companies selling imported products would effectively be taxed on the full value of the sale rather than just the profit. Export revenues, meanwhile, would be excluded from company tax bases, giving net exporters the equivalent of a subsidy that would make them big beneficiaries of the change." - Financial Times
"...the DBCFT would impose a flat 20 percent tax only on earnings from sales of output consumed within the United States... It gets complicated, but the upshot is that the cost of imported supplies would no longer be deductible from taxable income, while all revenue from exports would be. This would be a huge incentive to import less and export more, significant change indeed for an economy deeply dependent on global supply chains." - Washington Post
"Even though it’s economically similar to, and probably better than, the value-added taxes (VATs) many other countries use, it may be illegal under World Trade Organization rules. An international clash over taxes is something the world can ill afford when protectionist sentiment is already running high. ...The controversy is over whether border adjustability discriminates against trade partners. ...the WTO operates not according to economics but trade treaties, which generally treat tax exemptions on exports as illegal unless they are consumption taxes, such as the VAT. ...the U.S. has lost similar disputes before. In 1971 it introduced a tax break for exporters that, despite several revamps, the WTO ruled illegal in 2002." - Wall Street Journal