• Jeff Streader

Border Adjustments and Tax Reforms


Put simply, Paul Ryan’s and President-elect Trump’s “border tax adjustment” proposal would tax imports into the United States at the corporate income tax rate, while exempting income earned from exports from any taxation. The reform would closely mirror tax border adjustments in economies with consumption-based VAT tax systems.

If enacted, the plan will likely be extremely bullish for the US dollar. In addition, it would have a transformational impact on the US trade relationship with the rest of the world.

On December 21, the Trump transition team announced that economics professor Peter Navarro, a staunch critic of the U.S.-China commercial relationship, will lead a new council in the White House targeting the trade deficit. This reinforces the likelihood of Border Adjustments and Tax Reform being a central pillar of a tax reform plan advocated by the incoming Administration.

Navarro described the Trump trade policy platform as "defensive" but "not protectionist" and is supportive of Trump's election pledge to slap a 45% on Chinese tariffs.

Four Interesting Considerations in Regard to Border Adjustments and Tax Reform

  1. It generates Pro-American Political Headlines

  2. It is great for Corporate Messaging - corporate America doesn't want to pay the 20% BAT, thus board room discussion of strategic investment into a US supply chain.

  3. Income Generation - BAT would generate over $1 trillion per year, more than offsetting the revenue loss from the corporate rate cut from 35% to 23%.

  4. Creates a more level global playing field for the US manufacturing sector to compete

An alternative is that the U.S. might introduce its own VAT, similar to the tax model deployed by Europe and most major economies of the world. The revenue raised could also fund the lower corporate tax rate within the current system.

In summary, The Border Adjustment Tax proposal could increase tax on importers, with "the longer term goal to incentive companies to bring their manufacturing...back to the USA."

#BorderAdjustments #TaxReforms #BorderTaxAdjustment

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