The Corner

Politics & Policy

Why the Effort to Push the Border-Adjustment Tax Further?

Efforts to continue pushing for the border-adjustment tax continue. There are many signs that the House leadership hasn’t given up on the 20 percent tax on imports — or at the very least House Republicans aren’t yet looking at a different path to get tax reform through. A letter circulating among right-leaning groups in support of the House GOP’s “Better Way” tax-reform plan and, more particularly, its border-adjustment provisions, may be more evidence of that.

It is no secret that I disagree with the border-adjustment tax aspect of the House Tax Blueprint. As I’ve written before, the BAT contains no pro-growth benefits of its own. The rest of the plan, which the BAT is supposed to “pay for,” does that. And there are other options for passing the good provisions of reform that don’t involve a BAT. Pairing reform with spending cuts (deficit neutrality as opposed to revenue neutrality) makes the most sense. It’s a more principled approach and, by reining in wasteful government spending, would be even more beneficial to economic growth. If politicians don’t have the stomach to do the best thing and limit government, then they could still pass a smaller scale reform without taking the risk that comes with the BAT.

Policy disagreements, even among people who usually agree, are common. I am puzzled, however, by the continued efforts to support the BAT and also by Speaker Ryan and the House Ways and Means Committee’s apparent lack of efforts to look for an alternative.

I will freely admit that I don’t understand politics — but from where I sit, it looks like continuing to push for this provision is a major strategic blunder that is likely to lead Republicans to another Obamacare-style embarrassment.

First, there is no consensus on the BAT. It splits Republican politicians, right-leaning organizations, business interests, and conservative voters alike.

Second — and perhaps more important – there appears to be no chance it will pass the Senate, and it might not even be able to make it out of the House. Does that scenario rings a bell? (We will see what happens to the House Republican health-care bill, since the Senate has already announced it is dead on arrival.) And do you remember what happened with the Democrats’ 2009 cap-and-trade vote?

Third, the White House (whether convinced that the BAT is bad policy, bad politics, or a mix of both) has decided not to support the provision. This should be sending a signal to the House to look at alternative paths.

Finally, it is hard for me to understand why Republicans are so obsessed with this provision. To be sure, there is debate about exactly on whom the burden will land, but surely it’s not a conservative or libertarian position to favor hidden taxation over visible taxation. If the government is going to raise $100 billion a year, the citizens should know where the money is coming from. The tax load we pay is the “price of government” and citizens should know what the price is, so as to limit demand for it.

Also, can’t Republicans and the pundits who are continuing to push the BAT see that regardless of whether they are right or wrong about currency adjustments, it’s going to be very easy for Democrats to demagogue and say that Republicans are paying for corporate tax cuts by putting a new tax on consumers. Perhaps even worse, have they forgotten their public-choice economics 101? Once Democrats are back in power (or, honestly, once we are so deep in debt due to a constant failure to reform entitlement programs and Republicans are looking for money), this provision makes it very easy to raise the tax rate, or give America its own Value Added Tax, or even bring back the corporate tax so there is perfect parity with Europe.

Why the House leadership seems to be doubling down on its support for the BAT at this stage instead of looking for other ways to do tax reform is beyond me. What am I missing?

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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