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A proposal by House Republicans to reduce the corporate tax rate — the highest in the developed world — is an admirable attempt to make the U.S. more competitive, but combining the plan with a border adjustment tax is not the right path forward. The proposed tax would drive up costs on consumer goods — on everything from cars to smartphones — while also negating any potential benefit from a lower corporate tax rate.
Georgia Sen. David Perdue said it best when he called the plan to tax products entering the U.S. “regressive,” adding “it just hammers low-income and middle-income consumers, and it really doesn’t foster growth.” And Federal Reserve Bank of New York President and CEO William Dudley cautioned policymakers about the “unintended consequences” of such a “dramatic change” in policy.
Setting aside the potential conflicts with existing treaty obligations among our partners in the global community, the proposed border tax plan brings us one step closer to being an isolationist nation that embraces the same populist proposals that led to the Great Depression.
The proposal would not only subject U.S. imports to a tax, it also would exempt exports from corporate income taxes. While promoting exports is a worthwhile strategy, it does not make up for the economic damage caused by price increases on a vast range of widely used products.
Even President Trump is skeptical, characterizing the plan as “too complicated.” In fact, it could become his Obamacare, defining his presidency by beginning it with a massive tax that will harm his supporters and U.S. manufacturers.
Consider what a proposal like this could do to the price of cars. According to the Cars.com 2016 American-Made Index, the top five cars incorporating the most U.S.-made content are from foreign brands. Yet the discussed 20 percent tariff on non-U.S. content would still unfairly punish manufacturers who are investing in America, and whose vehicles are primarily manufactured with domestic content, passing along unreasonable costs to consumers.
And the border tax will not be contained to just cars – it will hit at the very heart of Middle America. Shoppers who rely on inexpensive products at big-box stores will be hit the hardest, shouldering 20 percent higher prices on everyday essentials.
Any retailer selling consumer electronics will have no choice but to pass on to consumers the cost of products, such as cell phones and computers, both of which have become virtual necessities in our everyday life.
Sen. Perdue and others are right: A border tax is regressive.
The wealthiest among us won’t be impacted by a 20 percent increase in retailer’s prices – the working class will.
The Consumer Technology Association represents more than 2,200 consumer technology companies, many of whom import technology products Americans love and rely on. Yes, we import a lot – but we also export a lot. Imagine the potential damage to our economy if and when other countries, who are our trading partners today, retaliate with export tariffs and taxes of their own in the wake of this border tax.
The reality is this border tax will not bring back high-paying U.S. factory jobs. Instead, it will be a tax on middle-class American consumers – and may even shut the doors of U.S. companies.
Gary Shapiro is president and CEO of the Consumer Technology Association, and author of “Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses“ and “The Comeback: How Innovation Will Restore the American Dream.” Connect with him on Twitter: @GaryShapiro
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