Congressional Republicans Take Aim At Taxes On Imports And Exports

Big box retailers and advocates for the poor are teaming up for what could be a fight with congressional Republicans who want to change the corporate tax code. At issue is the border adjustment tax.

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Leading Republicans in Congress are not big fans of President-elect Trump's talk of higher taxes on imports, but they are talking about one change which could affect the price of goods that you buy. It's an overhaul of the system used to tax imports and exports. Charles Lane from our member station WSHU explains.

CHARLES LANE, BYLINE: Debbie Hickey (ph) just bought some slacks for her sons, and she wanted to buy them at Wal-Mart.

DEBBIE HICKEY: 'Cause they're, you know, young and starting out in the business world, so their clothes are very economical.

LANE: What makes them economical is this...

HICKEY: Oh, Vietnam. Made in Vietnam.

LANE: The U.S. imports about $2.7 trillion worth of goods a year. Imports are cheap because labor costs are much lower in places like Vietnam, and for the most part, the U.S. doesn't impose a lot of special taxes on them. Here's how it works. When Wal-Mart buys pants from Vietnam for $20 and sells them to Hickey for 25, the company is only taxed on that $5 of profit. Part of the Republican tax plan would change that. It would tax Wal-Mart for the full $25. It's called a border adjustment tax, and Wall Street analysts expect some retail prices to go up as much as 15 percent.

HICKEY: Wow, OK, so that would make a difference of where I buy Things like that. Honestly, 15 percent, I think it's a lot.

LANE: At the same time the border adjustment would hike taxes for companies that import, it would cut taxes for companies that export. Alan Auerbach is an economist at Berkeley, and one of the architects of the plan.

ALAN AUERBACH: Our current corporate tax system is just broken, it has so many problems.

LANE: The corporate tax code has been accused of slowing growth, forcing companies to shift profits overseas, or even shifting the entire company. Advocates say border adjustment would solve that, and Republicans love it for one more reason.

AUERBACH: The fact that it's encouraging companies to locate profitable productive activities in the United States, companies that might otherwise locate them in countries where their tax rates are lower. There's no longer an incentive to do that.

LANE: Even if this plan sounds like one dreamed up by President-elect Donald Trump, it actually predates his campaign by several years. In fact, it originates from the left. And Auerbach, who advised Democratic presidential nominee John Kerry, thinks unions should embrace border adjustment, but right now that seems unlikely.

BOB MCINTYRE: The Republican Party has been trying to get some kind of weirdo consumption tax for at least the last 40 years.

LANE: Bob McIntyre directs the left-leaning Citizens for Tax Justice. Since the poor and middle class spend the vast majority of their income, he sees them shouldering most of the import tax. Meanwhile, companies that export a lot will pass their new tax windfall on to shareholders. McIntyre says this is the same regressive tax Republicans have always pitched.

MCINTYRE: They like taxes that hit the middle class and the poor, and they hate taxes that the rich have to pay, and now they're in power.

LANE: Academics point to economic theory which says as the U.S. reduces its trade deficit, the dollar will gain in value and offset any benefits to U.S. exports. Wall Street buys this theory, but not its simplicity. Brian McGough is a retail analyst for Hedgeye.

BRIAN MCGOUGH: This is a paradigm shift, and a paradigm that's been in place for 30 years won't change in a week, won't change in a month, and it won't even change really in three or four years.

LANE: McGough predicts major bankruptcies, and this is where the retail lobbyists come in. They've been marshalling resources and planning a full-on battle royal to key border adjustment out of the tax bill. Proponents, however, say Congress has run out of options. If the corporate tax code is going to change, a border adjustment might be the only thing both sides can agree on. For NPR News, I'm Charles Lane.

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