Spicer: We can pay for the wall with our 20% border-adjustment tax on Mexican imports
The media’s freaking out about this, seemingly under the impression that Spicer’s talking about a special tariff on Mexican goods to fund the wall. He isn’t. I think.
“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico,” Spicer said.
“If you tax that $50 billion at 20 percent of imports – which is by the way a practice that 160 other countries do – right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous,” he said. “By doing it that we can do $10 billion a year and easily pay for the wall just through that mechanism alone. That’s really going to provide the funding.”
That sounds at first blush like a tariff, in which foreign goods are taxed at a higher rate than domestic goods in order to put them at a competitive disadvantage. But that’s not what Spicer’s referring to. The 20 percent tax on imports he mentions appears to be part of the House GOP’s plan for a border-adjusted business tax on imports. The point of that tax isn’t to tax imports at a higher rate than domestic goods, it’s to tax them at the same rate — 20 percent. The Tax Foundation explains:
At first glance, a border adjustment sounds like a tariff because it applies to imports, but does not apply to exports. The adoption of a border-adjustable tax is sometimes praised as a cure for the U.S. trade deficit, or promoted as giving the U.S. a competitive edge, or offsetting a competitive edge now enjoyed by foreign producers whose countries use border-adjusted taxes. Such claims are unfounded, and based on a misunderstanding. For instance, Senator Ted Cruz wrongly argued that his plan would benefit exports.
A border-adjusted tax falls equally on domestic and imported goods, in order to tax the amount of income people spend on consumption. A domestically produced good and an imported good will face the same tax. Goods produced in the U.S. and exported abroad are exempt from taxation, but exports are not consumed at home. However, the foreign buyer may be subject to a consumption tax levied in his home country, but that is not the concern of the U.S. taxing authority.
It’s like a tariff in the sense that it eliminates an advantage imports now enjoy but not like a tariff in that it doesn’t place them at a disadvantage. And of course it’s supposed to apply to all imports, not just ones from countries that stubbornly refuse to pay for U.S. infrastructure when the president demands it. That’s one of the key questions following Spicer’s comments today: Is he imagining the border-adjustment tax being applied universally or selectively as a sort of punishment for particular countries? The NYT claims that “Mr. Spicer said the tax initially would apply only to Mexico,” but Spicer was quoted elsewhere as saying it would apply to “imports from countries that we have a trade deficit from, like Mexico.” Er, either way — Mexico or all countries with whom the U.S. has trade deficits — the border-adjustment tax isn’t supposed to be targeted. Insofar as Spicer is viewing it as a way to penalize only certain countries, it does feel more like a tariff than a border-adjustment tax.
At last check as I write this, Spicer was backing off by insisting that the tax is just one way they might pay for the wall, not a firm proposal. Trump has said he doesn’t like the idea of a border-adjustment tax, calling it “too complicated,” but maybe the thought of people having to pay more for tequila and avocados to fund the wall will make him perk up. (In fairness, the policy should also make the dollar stronger.) Speaking of which, Ben Shapiro made me laugh with this thought today:
Yeah, there are all sorts of things the White House can do to weaken Mexico’s economy — and the weaker it gets, the greater the pressure on the border will be. If you think the wall and a beefed-up Border Patrol are going to solve that with perfect goalkeeping, plugging holes on the border even as more and more people clamor to sneak in, okay. But remember — Trump has eight years in office at most and possibly as little as four, and a Democratic successor won’t be nearly as much of a stickler about keeping out Mexicans who can’t find work anymore at home. It’s fine to play hardball on trade and outsourcing, but if you’re a border hawk you need to accept greater demand for illegal immigration across the border as an inevitable trade-off.