I have talked with many of the actors in the tax reform process—both in Congress and in think tanks. These discussions have served as the basis for my recent writing in Thoughts From the Frontline (subscribe here for free).

I’ve seen one point of agreement—the tax system must be massively reformed. That point, sadly, is where agreement ends.

Tax reform ideas usually fail because the status quo gives everybody some kind of perceived benefit. In reality, the benefit may be worth less than people think. But it’s preferable to the uncertainty of a new system.

We must remember that the "Better Way" is simply a set of proposals at this time. President Trump announced on Feb. 9th that his economic team is drawing up its own “phenomenal” business tax reform proposal.

I’m not enthusiastic about the border adjusted tax (BAT) idea either, to say the least. I fear it would come with serious macroeconomic side effects, and not just for the US.

The BAT Aims to Increase Exports

Here is how the Tax Foundation calculates the plan’s impact, under both static conditions and a dynamic model that tries to assess economic changes.

Under static conditions, the plan would reduce tax revenue by some $2.4 trillion over 10 years. A dynamic scoring reduces that amount to $191 billion. The reality is likely somewhere in between, but no one really knows.

Here is how it works: Businesses that import goods from outside the US would not be able to deduct the cost of those goods from their corporate tax returns. But companies that export products to other countries would not count the revenue received from the exports as income.

The hopeful effect of this measure is to encourage exports and discourage imports. This is in keeping with President Trump’s objectives.

Our Whole Economy Depends on Imports

Most Americans may not realize how different our tax system is from those of every other country in the world. Almost every other nation has some variation of a value-added tax (VAT), a form of sales tax added at every level of production.