Steve Forbes: The GOP’s YUGE Mistake

 

As kids, we traded all sorts of things. Baseball cards, magazines, toys, records, rock band belt buckles. I’ll give you my silver Supertramp for your brass Zeppelin! We traded everything. These early life lessons taught us successful trades occurred when each party benefited from the transaction which equaled less black eyes on the playground. As adults in the private sector we now trade goods and services for monetary reward. Governments do not. It’s a vacuum of unintended yet unaccountable consequences where profitable transactions neither matter or are even considered. Congress is filled with politicians who, once elected, immediately forget the basic premises we learned as children. Well, thank goodness we now have the Republicans in power, you say. Those in charge will remedy the unfair economic policies of the past eight years, you say. Not so fast. In a pre-election short interview, fair tax advocate, publisher and once presidential candidate Steve Forbes told us his hopes for a GOP/Trump alliance. Now that alliance is upon us, and as this Forbes article below suggests, he shares his concern over the GOP’s tax policy ‘trade’ of their own, and it will not only not benefit anyone, but it can hurt the party and new President.

FORBES, January 11. OMG! House Republicans Are Preparing To Hit Consumers With A Horrible New Tax That Will Harm Trump And Hurt The Economy

REPUBLICANS in the House of Representatives are inadvertently setting a nasty political and economic trap for Donald Trump. Yes, it’s the Republicans, not the Democrats, who are ready to administer an unnecessary black eye to the new President. That’s not their intention, but it manifestly will be the result.

The vehicle for this unwitting GOP punch is a new exaction called the border adjustability tax. This levy will cost American consumers at least a trillion dollars over the next ten years. Knowing how Washington politicians calculate these things, you can bet the amount will end up being considerably more. Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.

Few people are even aware of what the Republicans are getting ready to hit them with. There has been virtually no debate or public discussion about this new, horrible tax, yet in one of those strange fits of collective, self-destructive behavior, numerous GOP lawmakers are ready to enact it.

Here’s how, in essence, this sneaky, anti-consumer tax works. Importers will no longer be allowed to deduct an item as a business expense. To simplify things, let’s say a store imports a pair of sneakers for $40 and then sells them for $50, making a $10 profit on which it would owe taxes. Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50! And who, ultimately, pays this tax? You, the consumer, in the form of higher prices or fewer choices of where you can shop. Retailers and their customers will be hit.

Many oil refiners import crude oil to turn into gasoline. This new tax will sharply raise their costs, which will spell pain when you fill up your tank. Worse, some could be forced out of business or have to sharply curtail operations, as drivers cut back on buying the suddenly more expensive fuel.

Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.

But wait, it gets worse. Another feature of this bizarre GOP scheme gives exporters a gargantuan tax break by, in effect, not taxing their export revenues. Let’s say a corporation sells a piece of machinery to Iran for $5 million, which cost only $4 million to produce. That means $1 million in taxable profit. Under the new Republican scheme, however, that $5 million received from the mullahs wouldn’t be taxable. Instead of a $1 million profit, the corporation, for tax purposes, would have a $4 million loss. Loophole doesn’t begin to describe this “tax break.”

No wonder companies like Boeing, GE and other big exporters are orgasming over this GOP “reform”.

So, how is this a trade?

Big breaks for big companies, higher prices for beleaguered consumers. Why are the Republicans doing this? They say the revenue raised will help finance a huge tax tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy. But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world. Democrats will someday be back in power, and they won’t hesitate to either ramp up this GOP-created tax or go for the VAT. This would be hypocritical–rip apart the Republicans over this tax, and then go on to compound their felony. A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.

The rest of the article is here.

Does the GOP plan ‘level’ the playing field as they purport, or will this open up a massive trade war, increase consumer costs and set up the Trump administration for unnecessary economic difficulties and even failure?

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  1. I Walton Member
    I Walton
    @IWalton

    That’s hard to believe.  Is it true?  There is a much easier, less distorting, less harmful way to do this.  A vat is border adjustable, collects the tax on 100% of the import price, and is easy to collect, it can’t be cheated on and contains few incentives to cheat.  The only problem is that Congress likes to vary it on different goods and it’s such a cash cow income taxes must be lowered significantly or the Feds would collect too much which they’d immediately spend.  The non deduction on import costs and subsidy to exports is the kind of cleverness Congress loves because they get to give and take away and adjust regularly so they can sell the adjustments.  Really a bad idea which is what you’d expect from Congress.  I hope the new administration isn’t behind this.

    • #1
  2. cdor Member
    cdor
    @cdor

    I Walton (View Comment):
    That’s hard to believe. Is it true? There is a much easier, less distorting, less harmful way to do this. A vat is border adjustable, collects the tax on 100% of the import price, and is easy to collect, it can’t be cheated on and contains few incentives to cheat. The only problem is that Congress likes to vary it on different goods and it’s such a cash cow income taxes must be lowered significantly or the Feds would collect too much which they’d immediately spend. The non deduction on import costs and subsidy to exports is the kind of cleverness Congress loves because they get to give and take away and adjust regularly so they can sell the adjustments. Really a bad idea which is what you’d expect from Congress. I hope the new administration isn’t behind this.

    I agree with you @iwalton. If all this is as Mr.Sussman has written it will surely be a mess. Somehow it just doesn’t feel Trumpian to me. He’s an in your face, straight forward kind of guy. I would think his policies would be more direct as well. This is way too convoluted to be successful.

    • #2
  3. Z in MT Member
    Z in MT
    @ZinMT

    This plan is dumb. The huge windfall for exporters is worse than the tax on imports.

    When the price of all goods at Wal-mart go up by 30% I wonder if Trump’s voters will understand that cheap goods from China are not the bugaboo they think.

    • #3
  4. ctlaw Coolidge
    ctlaw
    @ctlaw

    Dave Sussman: Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50!

    In much of the rest of the world, the VAT is used as a combination of proxy tariff and export subsidy against countries that do not have a VAT (i.e., the US). A VAT would level the playing field. A YUGE problem with a VAT is that I do not trust the government to correspondingly eliminate other taxes, mostly state taxes (e.g., sales taxes, property taxes…)

     

    • #4
  5. I Walton Member
    I Walton
    @IWalton

    ctlaw (View Comment):

    Dave Sussman: Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50!

    In much of the rest of the world, the VAT is used as a combination of proxy tariff and export subsidy against countries that do not have a VAT (i.e., the US). A VAT would level the playing field. A YUGE problem with a VAT is that I do not trust the government to correspondingly eliminate other taxes, mostly state taxes (e.g., sales taxes, property taxes…)

    Of course.  The tax code has to be tossed and as Forbes says in the video, fixed from top to bottom.  I’d link the VAT rate to a flat tax rate, at least politically, so that it is more difficult to raise either.  In the process we would eliminate the corporate profits tax entirely, treating corporate profits as income of the holder of record.  Gets the incentives right, collects lots of revenue for the least possible distortions, makes big stockholders start paying attention again.   Congress will hate it so will the new Secretary of Treasury.

    • #5
  6. Andrew427 Inactive
    Andrew427
    @Andrew427

    ctlaw (View Comment):

    Dave Sussman: Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50!

    In much of the rest of the world, the VAT is used as a combination of proxy tariff and export subsidy against countries that do not have a VAT (i.e., the US). A VAT would level the playing field. A YUGE problem with a VAT is that I do not trust the government to correspondingly eliminate other taxes, mostly state taxes (e.g., sales taxes, property taxes…)

     

    I tend to agree. I have a soft spot in my heart for an import tax because it reminds me of how the government was funded through tariffs before the income tax. But I don’t trust the way it will be executed.

    • #6
  7. Randy Weivoda Moderator
    Randy Weivoda
    @RandyWeivoda

    How many House Republicans are pushing for this?  I didn’t see anything in the linked article about who is supporting it and how many fellows they have.  It seems improbable that a large number are backing this plan.

    • #7
  8. I Walton Member
    I Walton
    @IWalton

    Andrew427 (View Comment):

    ctlaw (View Comment):

    Dave Sussman: Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50!

    In much of the rest of the world, the VAT is used as a combination of proxy tariff and export subsidy against countries that do not have a VAT (i.e., the US). A VAT would level the playing field. A YUGE problem with a VAT is that I do not trust the government to correspondingly eliminate other taxes, mostly state taxes (e.g., sales taxes, property taxes…)

    I tend to agree. I have a soft spot in my heart for an import tax because it reminds me of how the government was funded through tariffs before the income tax. But I don’t trust the way it will be executed.

    An across the board uniform import tariff would be the equivalent of a devaluation, which for us would be good since we can’t devalue, but this tax isn’t that, it’s a very strange tax the impact of which we’d know after we’d lived with it.  Sort of like Obamacare. Let’s not go there again.

    • #8
  9. Steve C. Member
    Steve C.
    @user_531302

    Too clever by half. Somewhere someone is declaiming that tax cuts have to be revenue neutral.

    Wanna lose your majority Republicans, this is your road map.

    • #9
  10. tigerlily Member
    tigerlily
    @tigerlily

    cdor (View Comment):

    I Walton (View Comment):
    That’s hard to believe. Is it true? There is a much easier, less distorting, less harmful way to do this. A vat is border adjustable, collects the tax on 100% of the import price, and is easy to collect, it can’t be cheated on and contains few incentives to cheat. The only problem is that Congress likes to vary it on different goods and it’s such a cash cow income taxes must be lowered significantly or the Feds would collect too much which they’d immediately spend. The non deduction on import costs and subsidy to exports is the kind of cleverness Congress loves because they get to give and take away and adjust regularly so they can sell the adjustments. Really a bad idea which is what you’d expect from Congress. I hope the new administration isn’t behind this.

    I agree with you @iwalton. If all this is as Mr.Sussman has written it will surely be a mess. Somehow it just doesn’t feel Trumpian to me. He’s an in your face, straight forward kind of guy. I would think his policies would be more direct as well. This is way too convoluted to be successful.

    It sounds very Trumpian to me. In fact, he talked about a border tax earlier this week. I wonder if the Republicans are doing this because of Trump.

    • #10
  11. The Reticulator Member
    The Reticulator
    @TheReticulator

    Steve C. (View Comment):
    Too clever by half. Somewhere someone is declaiming that tax cuts have to be revenue neutral.

    Wanna lose your majority Republicans, this is your road map.

    I think many of them do want to lose their majority, whether they realize it or not. It’s more comfortable being in a minority, because then nothing is your fault.

    • #11
  12. Dave Sussman Podcaster
    Dave Sussman
    @DaveSussman

    Randy Weivoda (View Comment):
    How many House Republicans are pushing for this? I didn’t see anything in the linked article about who is supporting it and how many fellows they have. It seems improbable that a large number are backing this plan.

    Here’s one of several articles at CNBC. Ricochet’s own Larry Kudlow disagrees with it.

    The best overview I’ve seen (outside of Forbes above) is from Zero Hedge.

    • #12
  13. RightAngles Member
    RightAngles
    @RightAngles

    Dave Sussman (View Comment):

    Randy Weivoda (View Comment):
    How many House Republicans are pushing for this? I didn’t see anything in the linked article about who is supporting it and how many fellows they have. It seems improbable that a large number are backing this plan.

    Here’s one of several articles at CNBC. Ricochet’s own Larry Kudlow disagrees with it.

    The best overview I’ve seen (outside of Forbes above) is from Zero Hedge.

    Surely these guys can have a little meeting with Trump before it’s too late?

    • #13
  14. Steve C. Member
    Steve C.
    @user_531302

    tigerlily (View Comment):
    It sounds very Trumpian to me. In fact, he talked about a border tax earlier this week. I wonder if the Republicans are doing this because of Trump

    Disagree. A tariff is much more Trumpy. It can be explained in 25 words or less.

     

    Maybe a bit of a stretch, but it seems to me Trump and Churchill share an appreciation for short declarative Anglo Saxon sentences.

    • #14
  15. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    tigerlily (View Comment):

    cdor (View Comment):

    I Walton (View Comment):
    That’s hard to believe. Is it true? There is a much easier, less distorting, less harmful way to do this. A vat is border adjustable, collects the tax on 100% of the import price, and is easy to collect, it can’t be cheated on and contains few incentives to cheat. The only problem is that Congress likes to vary it on different goods and it’s such a cash cow income taxes must be lowered significantly or the Feds would collect too much which they’d immediately spend. The non deduction on import costs and subsidy to exports is the kind of cleverness Congress loves because they get to give and take away and adjust regularly so they can sell the adjustments. Really a bad idea which is what you’d expect from Congress. I hope the new administration isn’t behind this.

    I agree with you @iwalton. If all this is as Mr.Sussman has written……This is way too convoluted to be successful.

    It sounds very Trumpian to me. In fact, he talked about a border tax earlier this week. I wonder if the Republicans are doing this because of Trump.

    Exactly- this is in place of a tariff, yet still favors domestic value added.  I am not a fan- I prefer flat taxes and open trade- but unlike Steve Forbes, I think that if the public demands spending, you have to pay for it.

    • #15
  16. Scott R Member
    Scott R
    @ScottR

    The time will come — sooner rather than later, most likely — when it will be easy for Republicans in Congress to say no to Trump. Until then, we desperately need Ryan and McConnel to keep their heads, be tough, and refuse to give the president legislation that they know to be Trumpian knuckleheadedness.

    • #16

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