Thursday, February 2, 2017

Border Tariff or Border Adjustment Tax?

According to Reuters Breakingviews there's a lot of talk these days about borders and taxes in Washington. U.S. President Donald Trump wants to hit firms that outsource with a simple tariff on imports. Republicans in Congress have pitched a more complex idea, a border adjustment, built into a corporate-tax overhaul. Breakingviews ticks through the winners and losers.

Angered over companies setting up factories in Mexico and elsewhere to produce goods for the U.S. market, as well as by those who already manufacture outside the United States, the president has threatened to impose a penalty in the form of a tax at the border. The levy, which he has suggested could be as high as 35 percent, would apply to firms that import goods to the United States. On Monday, he reiterated his threat to impose a "very major" border tax during a meeting with manufacturing executives. Separately, he'd also reduce the standard corporate tax rate to 15 percent from the current 35 percent.

Trump's particular target is U.S. companies that don't manufacture in America, and it's unclear how widely his punitive levy would, or could, be applied. But he's painted it as a simple border tariff. Lawmakers led by House Speaker Paul Ryan, on the other hand, would include border adjustments in a broader revamp. They too would cut the typical corporate income tax rate, to 20 percent in their plan. And they'd move toward a territorial system in which companies would be taxed where income is earned.

The cost of imported parts or finished goods for use or sale in the United States would no longer be deductible for tax purposes, while revenue from exports would be excluded from taxable income. The idea, House Republicans say, is to reduce incentives for companies to play games with the prices at which they move goods between jurisdictions or to move their headquarters abroad to reduce their tax bill. Currently, a U.S. company's overseas profit is taxed at home (often in addition to incurring tax overseas) but only when the money is brought back to the United States. Export revenue and import costs are both included in calculations of U.S. tax liabilities.

In an interview, Trump told the Wall Street Journal that such a tax is too complicated, though he later said he would work with congressional GOPers.

To read more go to Reuters Breakingviews.

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