increasing u.s competitiveness and preventing american
TRANSCRIPT
U.S. House of RepresentativesCOMMITTEE ON WAYS AND MEANS
Increasing U.S Competitiveness and Preventing American Jobs from Moving OverseasCommunications Document for May 23 Tax Hearing
SETTING THE STAGE AT THE HEARINGHow Today’s Broken Tax Code Hurts American Competitiveness and Pushes American Jobs Overseas160 of Our Competitors Have a Tax Advantage Over America
OUR MAIN HEARING MESSAGEYour Action ItemsHeadline Goal
COMMUNICATING OUR SPECIFIC PRO-GROWTH POLICIES AT THE HEARINGHow Our Policies Will Make America More Competitive and Prevent Jobs From Moving OverseasMore About One Piece of Our Plan: Ending The “Made in America” Tax
How Ending the “Made in America” Tax Helps American Workers and Job CreatorsBy the Numbers: Americans Support Ending the “Made in America” Tax
Policy Spotlight
What Business Leaders Are Saying About How Tax Reform Increases Jobs in The U.S.RetailConsumer ProductsManufacturersFinancial Services
Frequently Asked Questions About Ending the “Made in America” Tax
WHAT YOU CAN EXPECT CRITICS TO SAY AT THE HEARINGIsn’t Border Adjustment Going to Raise Costs for Families by $1,700?Border Adjustment Will Tax Companies Out of BusinessThe Only Difference Between a BAT and a VAT is the First LetterBorder Adjustment Will Lead to a Trade WarHow Do You Know Border Adjustment Will Strengthen the Dollar?Border Adjustment Will Ruin the Chances for Tax Reform
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ContentsPg. #
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Setting the Stage at the Hearing
The tax code represents one of the most important factors in a company’s decision to invest and create jobs in the United States—or another country. While Washington has not updated our tax code in over three decades, our international competitors have taken significant action to make their tax systems more competitive for businesses and workers in the 21st century. Today, the U.S. tax code remains stuck in the 1980s as American workers watch their employers and job opportunities leave for countries with more competitive tax systems.
Today’s broken tax code:
• Drives American jobs, research, and headquarters overseas to countries with more competitive tax codes.
• Hurts American manufacturing by favoring foreign workers and businesses over American workers and businesses.
• Imposes the highest corporate tax rate in the industrialized world—effectively 39 percent when the 35 percent federal rate is combined with the average state corporate tax rate.
• Discourages global U.S. businesses from bringing home their foreign earnings to create jobs and increase paychecks for American workers.
• Devalues work done in the United States by taxing “Made in America” products and services—giving our foreign competitors an unfair tax advantage.
• Wrings money from Main Street job creators, by taxing small business owners at tax rates near 45 percent.
How Today’s Broken Tax Code Hurts American Competitiveness and Pushes American Jobs Overseas
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160 of Our Competitors Have a Tax Advantage Over America
Source: Tax Foundation
Today, more than 160 countries use some sort of “border adjustable” tax system. The United States is not one of them. And, as a result, our businesses, products, and workers are at a tax disadvantage here at home and in markets throughout the world.
BLUE: COUNTRIES WITH BORDER ADJUSTABLE TAX SYSTEMSThis is all of our nation’s major international competitors in Europe, Asia, and even here in North America with Canada and Mexico. Countries with border adjustable tax systems make up more than 70 percent of the global economy.
RED: COUNTRIES WITHOUT BORDER ADJUSTABLE TAX SYSTEMSThis is the United States and a small handful of other, mostly non-industrialized, countries. Our nation’s antiquated tax system puts America in the company of countries such as North Korea, Cuba, Syria, and Somalia.
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Our Main Hearing Message
Your Action Items
LINK IT. When Americans go online or turn on the television, they regularly learn about another well-known American job creator moving its headquarters to another country. But they don’t often hear about a major reason why: today’s broken tax code. That’s why it will be important for you to communicate how pro-growth tax reform will prevent American jobs from moving overseas and boost job creation, business investment, and economic growth here at home.
PERSONALIZE IT. To make the case, highlight someone in your district who has been hurt by an American business moving its jobs and headquarters overseas. Whether it is a manufacturing worker who lost his job; a Main Street job creator who is forced to close her doors after losing her biggest customer because its headquarters moved overseas; or a worker who is struggling to support his family, explain how people in your district will benefit from policies that increase American competitiveness and encourage job creation and investment in the U.S.
EXAMPLE
In his #TaxReformTuesday video, Rep. Reed highlighted a local manufacturer in his district. He said, “This is about reforming the code to make it simple, to make it fair, and make it competitive. So that we can make the product here to sell it around the world, as well as right here in our backyard. And what does that lead to at the end of the day? It leads to more jobs. It leads to more people having an opportunity to call Jamestown and other places home.”
EXAMPLE
In his opening remarks for our hearing on international tax reform last year, Chairman Brady highlighted a business that moved out of his district. He said, “[Our broken tax code] affected me—and my constituents—personally when a local company located a few miles from my home in Texas recently announced that it was being acquired by a foreign company and was moving its headquarters to Canada … every one of these moves results in fewer American jobs, fewer small business opportunities, and weaker economic growth.”
EXAMPLE
In a speech at the Heritage Foundation, Chairman Roskam put into context just how outdated today’s broken tax code is. He said, “Our tax code is not working for us anymore. Our tax code was created in 1986, and we’ve got an opportunity now to look back on that … Just to put this into context about how long ago 1986 was: the Bears won the Super Bowl, Ferris Bueller was out.”
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COMMUNICATE IT. Now, before the hearing, work to publish an op-ed, write a blog, and post on social media about how tax reform will increase American competitiveness and prevent American jobs from moving overseas. Explain the choice between today’s uncompetitive, anti-growth tax code and the pro-growth tax reform we are working to deliver.
EXAMPLE
Chairman Brady’s op-ed in the Orlando Sentinel: “We cannot afford to settle for a broken tax code that drives jobs overseas and rewards foreign products over ‘Made in America’ products … Under our border adjustable approach, all products sold in America will be taxed at a low, equal rate—regardless of where the product is made. No more tax advantages for foreign products at the expense of American businesses and workers. No more tax incentives to move jobs or manufacturing plants overseas.”
EXAMPLE
Chairman Roskam in an interview on Fox News: “How do we get the U.S. on the same footing as the rest of the world is?... 160 other countries around the world are countries that adjust at their border. In other words, they take their taxes off of their products as they export them, and we don’t do [this]. And we’re in the fine company of other countries like Somalia and North Korea. No joke. We’ve got to update our tax code.”
EXAMPLE
Rep. Paulsen at our hearing on international tax reform last year: “Our tax code has not kept pace with the modern economy, so it’s not only about keeping the headquarters that provide these good paying jobs, but for me it’s about the [local businesses] that rarely come up in these conversations.”
EXAMPLE
Rep. Nunes in an interview on CNBC: “I think this is a very simple way to border-adjust. It’s not a VAT (value-added tax). It’s not a sales tax. It’s not a tariff. We want to have business taxes completely revamped in this country because we want to encourage people to invest in the economy so that jobs can be created. We can get out of debt financing and into equity financing, so it’s a plan that will really make America great again.”
HEADLINE GOAL These action items will help get the word out about tax reform beyond the Beltway. Our goal is to make sure all Americans understand:
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Communicating Our Specific Pro-Growth Policies at the HearingHOW OUR POLICIES WILL MAKE AMERICA MORE COMPETITIVE AND PREVENT JOBS FROM MOVING OVERSEAS
LOWER TAX RATES FOR BUSINESSES OF ALL SIZES
WHAT IT IS
Today, the United States has the highest corporate income tax rate in the modern world at 35 percent. Additionally, small businesses now pay tax at individual rates as high as 44.6 percent. House Republicans have proposed to lower these rates dramatically to 20 percent for corporations, and 25 percent for pass-through businesses—the largest cut in business tax rates in American history.
HOW IT WORKS
Rather than forcing American corporations to pay the highest tax rates in the world, we provide a flat corporate tax rate of 20 percent—a rate that is significantly more competitive worldwide. With this lower, more competitive rate, America’s global businesses will have less incentive to move their profits, jobs, and operations overseas.
For pass-through businesses—our Main Street job creators—we make a historic change not only to lower rates but also to ensure they are taxed fairly. Under our Blueprint, small businesses will no longer be taxed under the individual side of the code at sky-high rates. Instead, we separate wage income from small business income to deliver a low rate of no more than 25 percent.
WHY IT MATTERS
With lower tax rates for U.S. businesses large and small, our job creators will have a better opportunity to compete and win anywhere in the world and use more of their hard-earned profits to create jobs and increase paychecks here at home.
MOVE THE UNITED STATES TO A MODERN, TERRITORIAL TAX SYSTEM
WHAT IT IS
We are proposing to move the United States away from the burdensome “worldwide” tax system we have now to a modern, “territorial” tax system that allows America’s global businesses to bring home foreign profits to invest in our communities.
HOW IT WORKS
Unlike the vast majority of our international competitors, America now forces our global businesses to pay U.S. tax on their foreign profits when they bring this money home. This comes after the taxes they pay in the countries where the profits are earned. As a result, our businesses are encouraged not to bring the money home and instead reinvest foreign profits in growing jobs and operations overseas. We would end this outdated, uncompetitive, and burdensome policy that has led American-based global businesses to keep trillions of dollars in foreign profits abroad. We propose to tax only the profits businesses earn in America rather than everything they earn worldwide.
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WHY IT MATTERS
By moving to a modern international tax system that tears down barriers to investment in the United States, we will help our businesses compete worldwide and enable them to bring their foreign profits home to grow jobs, paychecks, and operations in our communities.
END THE “MADE IN AMERICA” TAX (BORDER ADJUSTABILITY)
WHAT IT IS
Using a “border adjustable” approach, our Blueprint proposes to tax all products sold in the United States at a low, equal rate of 20 percent—regardless of whether the product is American-made or foreign-made. This approach will also allow us to end the “Made in America” tax on U.S. exports that now results in our products being taxed twice when they are sold abroad. Under our plan, U.S. products sold abroad would not bear U.S. tax.
HOW IT WORKS
This fair and equal approach will dramatically level the playing field worldwide for our workers, businesses, and products. No longer will the U.S. tax code give foreign products a special tax advantage in America over our locally-made products. No longer will our “Made in America” exports be taxed twice when they are sold in foreign markets. No longer will businesses have tax incentives to ship jobs, manufacturing plants, and profits abroad.
WHY IT MATTERS
This solution is fundamental to eliminating all tax incentives for businesses to move overseas. With all products taxed at a fair, equal rate in America, there is no way to game the system by shifting jobs and operations abroad. This will ensure true competition takes place based on price, quality, and service—not special interest tax breaks. That’s great for American workers and consumers, and it’s great for our economy as a whole.
WHAT MATTERS MOST
THE PLAN AS A WHOLEEach of the solutions above—lowering rates, moving to a territorial system, and ending the “Made in America” tax—will bring greater strength and competitiveness to America’s economy.
And, when all three work together as a whole, our plan will not only stop jobs from moving overseas—it will make America a 21st century magnet for job creation, innovation, and business investment.
of Americans favor a system that incentivizes American products.
77%
FABRIZIO LEE POLLING MEMO, FEBRUARY 2017
Americans Support Pro-Growth Policies Promoting American Workers and Businesses
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MORE ABOUT ONE PIECE OF OUR PLAN:
Ending the “Made in America” Tax
Leveling the playing field for America’s workers and boosting manufacturing in the U.S. • Today’s tax code puts American
manufacturers at a significant disadvantage because it taxes only “Made in America” products—making it more difficult to sell our products around the world, as well as here at home.
• Meanwhile, more than 160 of our competitors “border adjust”—taking taxes off their exports and making it easier to sell their products abroad, including in the United States.
• Our Blueprint levels the playing field for our workers and manufacturers by ending the uncompetitive “Made in America” tax, ensuring that competition is based on quality, price, and service—not outdated tax regimes.
Rewarding work done in the U.S. instead of special interests. • Our current tax code favors foreign workers and products over American workers and
products. It puts special interests before the best interests of hardworking American families.
• By eliminating the “Made in America” tax, our Blueprint ends the penalty on work that’s done in the U.S.—and stops rewarding work that’s outsourced to other countries.
Establishing the U.S. as a 21st century magnet for new business investment and job creation. • By ending the “Made in America” tax, our Blueprint encourages businesses to create jobs and
invest in the U.S., instead of creating incentives for businesses to move jobs and investments to other countries.
• As more global companies move to America, the more opportunities our smaller local businesses will have to be a part of their supply chain—further increasing the creation of jobs and the rise in wages for American workers.
REMEMBER: This is only one piece of our pro-growth plan.
THE HARVARD-HARRIS POLL SURVEY, APRIL 2017
Americans Support Ending the “Made in America” Tax
of registered voters support the idea of border adjustment
of Trump voters support the idea of border adjustment
62%
80%
HOW ENDING THE “MADE IN AMERICA” TAX HELPS AMERICAN WORKERS AND JOB CREATORS
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Many economists and leaders have proposed this idea before—including President George W. Bush. In its “Growth and Investment Tax Plan,” President Bush’s 2005 Advisory Panel on Federal Tax Reform recommended moving the United States to a destination-based international tax system.
To implement this reform, the Panel stated:
“[T]he Growth and Investment Tax Plan should be border adjustable.”
The Panel listed several important benefits of taking this approach:
REMOVING TAX INCENTIVES TO RELOCATE ABROAD
“[T]he tax code would no longer give U.S. multinational corporations an incentive to move production overseas because the tax burden would be based on sales within the U.S., regardless of where the goods are produced.”
LEVELING THE PLAYING FIELD AT HOME
“[A] good sold in the United States by a foreign producer would be subject to the U.S. consumption tax. As a result, the foreign importer would compete in the United States on the same basis as local sellers.”
SIMPLICITY
“The Panel recommends imposing the Growth and Investment Tax Plan on a destination-basis because such a tax will be easier to administer than a comparable tax on an origin-basis.”
ELIMINATION OF BASE EROSION
“Border adjustments make the tax base domestic consumption, which at the business level equals domestic sales minus domestic purchases. As a result, the prices established for cross-border transactions are irrelevant, and there are no opportunities to use transfer prices to minimize tax liabilities.”
BACKGROUND
Policy Spotlight
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What Business Leaders Are Saying About Pro-Growth Tax Reform
Ken Langone, Co-Founder, Home Depot“A border tax, if we have a long point of view, will be phenomenal engine for growth in America. Big time… Here we are with a moment in time and an opportunity. The American people have said to us, the Republican Party, ‘here is your chance.’ The border tax will work.”
Chip Wilson, CEO, Lululemon“I think like anything else, if prices rise, you would think that people would buy less. But as I said, I’m very bullish on the American economy and the American dollar, and so, I think that they’re going to have more money to spend on it. And I don’t think [border adjustability is] going to affect the U.S. retail that much.”
Brad Anderson, Former CEO, Best Buy“And as it gets more vibrant and grows, they need it all the more, so I’m not sure that the full impact [of border adjustability] would get passed along to the consumer. And the stronger the consumer’s individual financial situation is, the better for most retailers.”
Bill Simon, Former CEO, Walmart“And a simple restructure of the tax code, to equalize the playing field would result in expansion of US manufacturing, something that I am very passionate about... it is an idea that has merit.”
Bob Sasser, CEO, Dollar Tree“But I do know that this for 30 years Dollar Tree has demonstrated its ability to adapt and react in managing our business effectively. Over the past 30 years we have seen inflation in all-cost including product, labor, transportation, and real estate and we’ve been able to successfully maintain our dollar price point…”
Gary Philbin, Enterprise President, Dollar Tree, Inc“We really need to see what it covers and how it is done and what rules are and all that. I am sure we will be able to respond accordingly to that... And I will tell you this—at Dollar Tree for 30 years we have been at dollar.”
RETAIL
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BUSINESS LEADER AND REPUBLICAN POLITICAL COMMENTERJOHN BURNET IN HUFFINGTON POST, MAY 2017
Special Interests Support Status Quo Policies Promoting Foreign Workers and Businesses
“There are powerful adversaries, including Wal-Mart and other retail operations, who are spending millions to keep the status quo. These large retailers, who have profited handsomely selling foreign-made products at a steep discount, argue that making comprehensive changes to the tax code would force them to drive up prices on consumers. In reality, however, border adjustment is something that hundreds of countries around the world currently do making the United States an outlier, along with the likes of Iraq and North Korea.
“The arguments made by opponents are based on the notion that a border adjusted tax would be levied in addition to corporate taxes. But, in fact, no one in Congress or the Administration has proposed that. What is being proposed is similar to what’s in place throughout the world, including European markets, where Wal-Mart and other retailers operate and make a profit.”
Mark Fields, CEO, Ford Motor Company
“The border adjustment piece of this is very intriguing for us…The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”
Brian Goldner, CEO, Hasbro
“You have to think about it holistically. The border adjustment tax, we would see it in line with a reduction of corporate tax rates, first. We see it as a total package.”
Blue Diamond
“Blue Diamond Growers supports modernizing our tax code and creating a system that is fair and promotes economic growth. The House blueprint offers an opportunity to achieve these outcomes.”
Tony Simmons, CEO, McIlhenny Co.
The House GOP reform “would be a tremendous win… I don’t think this would have any impact on the price of Tabasco in the United States.”
CONSUMER PRODUCTS
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Thomas Kennedy, CEO, Raytheon Company“Tax reform should encourage companies to invest and locate quality jobs and manufacturing in the United States…We endorse the position taken by the American Made Coalition including border adjustability...”
David Ricks, CEO, Eli Lilly“A feature of these systems is border adjustability or an equivalent. We support the House Blueprint that have been put forth because it includes these features…If we want to drive further growth in the economy, increase job support, raise wages, we need a new corporate tax system and we think this is a great start the Blueprint put forward by Speaker Ryan.”
Andrew N. Liveris, The Dow Chemical Company“[Border adjustments] will immediately accrue to our bottom line, as a significant tax advantage for us. Frankly, we are quite big supporters of that.”
William J. Jones, CEO, Cummins Allison“More sales for my company would entail factory expansion, a larger work force and greater tax revenues for my city, state and country. Hopefully, such border-adjustability would also create the conditions for businesses in the United States to once again supply the components needed to build my equipment.”
Gregory J. Hayes, CEO, United Technologies Corporation“I know the retailers are upset, but the fact is almost every other country in the world has some type of consumption tax like this. The world will not end because of a border adjustability tax.”
Dow R. Wilson, CEO, Varian Medical Systems“This reform is consistent with the tax policies of nearly every other country in the world, and it would effectively end the “Made in America” tax that creates an unfair advantage for foreign-based companies at the expense of U.S. jobs and economic growth.”
James Umpleby, CEO, Caterpillar Inc. “We are also encouraged by discussions around taxes. We’ve been a longstanding advocate for overhaul in the U.S. tax code. Many of our competitors, of course, are outside the United States and we need a tax policy in the U.S. that puts us on a level playing field, so we can compete fairly.”
MANUFACTURERS
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Thomas A. Amato, CEO, TriMas Corp.
Question: “Just given the chatter around border tax under the new administration, can you give us a sense of … how much flexibility will you have to move some of the facilities back to the U.S.?”
Amato: “As far as flexibility goes, we have flexibility because we have a large footprint in the states, and where we have overseas production.”
Kenneth Frazier, CEO, Merck & Co.
“We spent time talking about trying to have a tax code that creates a level playing field for American companies that does not favor companies that brings jobs outside the United States that allows companies to invest in job creation in the United States capital investment in the United States…
Douglas Peterson, CEO, S&P Global
“The Blueprint includes a border adjustment feature that would also level the playing field with foreign countries’ tax systems that feature value added taxes. Border adjustment should also discourage inversions and promote development of intellectual property in the U.S., and this would clearly benefit our company as several of our businesses export worldwide from the U.S.”
FINANCIAL SERVICES
SETTING THE RECORD STRAIGHT
Special Interests Scare Tactics
Factcheck.org – Border Adjustment Baloney: “The National Retail Federation, which fears that store profits would be squeezed if the price of imported goods rises, said on Feb. 3 that its own analysis shows the border adjustment would cost “up to” $1,700. But the NRF also notes that this worst-case estimate is for the first year. There’s wide agreement among economists that the net cost of imports would end up being unchanged because the U.S. dollar would strengthen against the currencies of its trading partners.”
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Frequently Asked Questions About Ending the “Made in America” Tax
How will border adjustability improve our tax system?• With this provision, all products sold in the United States will be taxed at a low, equal rate of
20 percent—regardless of whether the product is American-made or foreign-made. At the same time, all American-made products sold abroad will not bear U.S. tax at all.
• President Trump has repeatedly called for tax reform that levels the playing field for our businesses and workers. This provision helps achieve that goal.
Isn’t this a tax hike on imports?• No. This is fair and equal taxation for all products sold in the United States.
• Today, foreign-made products sold in America do not bear U.S. tax. Yet, our American-made products do bear U.S. tax, both if they’re sold in America and if they’re sold in a foreign country. This is not fair for our businesses and workers, and it puts our products at a major tax disadvantage.
• It’s time to level the playing field in America so that competition takes place on price, quality, and service—not special tax breaks.
What experts are saying:
“In addition to facilitating ‘tax shifting’ (we get the money, others bear the economic burden), border tax adjustments provide a double-whammy boost to American jobs and income growth.” Ernest S. Christian, tax attorney, helped draft 1981 tax cuts under President Reagan
“Without border adjustment, some companies might—for tax reasons alone—shift their production to lower tax countries abroad, and import goods and services to the US market … As an additional benefit, border adjustment would serve to level the playing field with global trading partners.” Dr. Gary Clyde Hufbauer, Peterson Institute for International Economics
“[Ending the ‘Made in America’ tax] will not raise prices to American consumers or hurt American businesses.” Martin Feldstein, Professor of Economics, Harvard University, Chairman of President Reagan’s Council of Economic Advisers (1982-1984)
“U.S. companies would immediately be on equal footing with their international competitors, the great majority of whom benefit from territorial taxation and border adjustability today … Instead of reading about corporate inversions and outsourcing, we’d be reading about jobs and firms moving into the U.S. to take advantage of the favorable tax rules here.” Ryan Ellis, Conservative Reform Network
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Is this a tax on one specific country?• No. All products sold in America would be taxed at an equal rate, regardless of whether they
are American-made or foreign-made.
• It does not matter if a product is made in Mexico, China, Germany, Brazil, or anywhere else—all imported products sold in the United States will be taxed at the same rate as “Made in America” products.
Isn’t this going to hurt American consumers by raising prices?• No. We are confident that markets and competition will adjust to prevent price increases for
consumers. That view is shared by many economists and tax experts.
• By taxing all products sold in the United States at a low, equal rate, we will restore true competition in America and empower consumers by making all companies compete harder their business.
Won’t this be blocked by the WTO?• If our foreign competitors decide to challenge us at the WTO on our move to end the “Made
in America” tax, we believe any such challenge will fail for a very simple reason—we are adopting the same sort of tax system currently used by more than 160 countries around the world.
• Our legislation will be written in a way that is WTO consistent and compliant—and we will meet and prevail over challenges brought by our international competitors.
Frequently Asked Questions About Ending the “Made in America” Tax
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What You Can Expect Critics to Say at the Hearing
“Isn’t border adjustment going to raise costs for families by $1,700?”
SEN. RON WYDEN (D-OR)
“Republicans want to raise prices on food, clothing and other simple products Americans buy every day. That’s not a plan to fix what’s broken in our economy today.”
CLUB FOR GROWTH
“The BAT would drive up prices on everyday items for typical American families.”
AMERICANS FOR PROSPERITY and FREEDOM PARTNERS
“With a new 20 percent tax on imported essentials like food, clothing, gas, and school supplies, these Americans will see their budgets tighten even further—too far for many already struggling to make ends meet.”
OUR RESPONSE: No. As FactCheck.org said, that’s “baloney.” Nobody has seen data to back up this fake number. And, a Tax Foundation analysis found that our proposal—including ending the “Made in America” tax—will increase wages by about $4,600 for every-day Americans.
“Border adjustment will tax companies out of business”
DAVID FRENCH, THE NATIONAL RETAIL FEDERATION
“Our members have told us that the import tax could be as high as five times their profits. I don’t know how viable some retailers would be in the face of this import tax.”
OUR RESPONSE:No one is suggesting adding a 20 percent import tax to our current tax system, which is what critics are deceptively arguing. Our plan is to lower the corporate rate to 20 percent and allow that to be border adjusted so that the corporate tax applies to imports.
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“The only difference between a BAT and a VAT is the first letter”
REP. SANDER LEVIN (D-MI)
“Layered on top of the rate reduction and a move to a territorial system is an adoption of ‘a destination-basis tax system,’ which would be achieved by providing for border adjustments exempting exports and taxing imports. Indeed, what the Republicans have included here is a key feature of a VAT, except that the blueprint goes through pains to insist such proposal is not a VAT.”
SEN. MIKE LEE (R-UT)
“Layered on top of the rate reduction and a move to a territorial system is an adoption of ‘a destination-basis tax system,’ which would be achieved by providing for border adjustments exempting exports and taxing imports. Indeed, what the Republicans have included here is a key feature of a VAT, except that the blueprint goes through pains to insist such proposal is not a VAT.”
OUR RESPONSE:This is not a VAT. This is one single tax that you don’t have to track transaction by transaction. At the end of the year, a business adds up its export sales and doesn’t count them as income. At the end of the year, it adds up its import costs and doesn’t count them as expenses. That’s the corporate tax at the new, low rate applied on a border adjustable basis. It is that simple.
“Border adjustment will lead to a trade war”
RANKING MEMBER RICHARD NEAL (D-MA)
“I think it has some emotional appeal, but I also think we have to be mindful about not touching off a trade war.”
FORMER SEN. PHIL GRAMM (R-TX)
“No other country in the world disallows the deductibility of imports, and here there is no parallel to a VAT. This policy is protectionism pure and simple, and the WTO would surely say so, opening America up to retaliation and possibly triggering a trade war.”
OUR RESPONSE:These assessments are deliberate efforts to create panic and alarm. We are designing this proposal to be WTO compatible. Sure, other countries might challenge us to protect the pretty good tax deal they have right now, but we are confident we will prevail in any WTO challenge on the law and the facts.
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“How do you know border adjustment will strengthen the dollar?”
SEN. MARK WARNER (D-VA)
“It’s also got to be paid for … But this seems so far beyond anything that has been discussed. With this whole notion that it is going to work itself out and the dollar is going to rise in value, it seems a bridge too far.”
VERONIQUE DE RUGY (MERCATUS CENTER) and DAN MITCHELL (CATO INSTITUTE)
“The repeated assumption presented as fact that trade flows won’t be affected at all by the new tax on imports because nominal exchange rates will adjust immediately and fully at the moment of implementation without any prior behavior adjustments in anticipation of the change should be taken with a grain of salt … those pushing for [border adjustments] are usually ignoring the impact of the currency adjustment itself, even though it be could be costly and painful.”
OUR RESPONSE:Leveling the playing field for “Made in America” products increases the demand for “Made in America” products and U.S. dollars overseas while decreasing demand for foreign-made goods in the United States. Economists and tax experts predict that these combined effects will lead to a much stronger U.S. Over 160 countries have a border-adjusted tax, and academic literature dating to the 1950s has shown that currency adjustments happen quickly after proposed changes in those border adjusted-taxes are announced.
“Border adjustment will ruin the chances for tax reform”
LARRY KUDLOW
“And if you stay with this, congressman, the whole corporate tax reform thing—the most important pro-growth measure—goes down the drain over this.”
OUR RESPONSE:A large majority of Americans support tax reform that includes ending the “Made in America” tax. A recent poll found that 62 percent of Americans support the idea, and 80 percent of Americans who voted for President Trump support it. That doesn’t sound like “nobody” to me.