Border Adjustment Tax ControversyBy
The most controversial aspect of the “Made in America” section of the upcoming tax reform bill could be House Ways & Means Committee Chairman Kevin Brady’s (R.-Texas) slightly complicated “border adjustment tax.” The general idea is to incentivize U.S. exports and penalize imports. Currently, the corporate income tax applies to businesses’ income from production in the United States. Under a border adjustment, the income tax would apply to businesses’ income from sales in the United States.
President Trump has seemed to prefer a straight tax on imports. Retail groups have signaled opposition to a border adjustment tax that, for example, might increase the cost to U.S. consumers of clothing, electronics, and other goods made overseas. But the Tax Foundation, an 80-year-old independent tax policy nonprofit, states, “Economists think that a border adjustment would also lead to a much stronger U.S. dollar, which would make it cheaper to import goods, and would cancel out the higher taxes on imports. Overall, there is little reason to think that a border adjustment would raise prices for consumers in the long run.”