Border Adjustment Tax – The Great Equalizer
Right now, if a company makes a product in the United States and sells the product overseas, it is required to pay income taxes to the U.S. on the income from the sale. But under a border adjustment, companies would no longer be required to pay income taxes to the U.S. on their income from exports – because the products are not sold in the United States.
On the flip side, under the current tax code, if a company sells a product in the United States that was produced overseas, it doesn’t pay income taxes to the U.S. on the value of the imported product. But under a border adjustment, companies would be required to pay income taxes to the U.S. on the value of their imports – because the products are sold in the United States.
In sum, under a border adjustment, the income tax would apply to goods produced and sold in the United States and goods produced in foreign countries and sold in the United States.
As it stands now, companies like homegrown Apple can open a massive production plant in China under the lowest wages for workers, who are housed inside the plant to work continuously, and only allowed to visit their families once or twice a month. It is a form of “mild slavery”. It is so depressive that they have erected netting around the building to prevent workers from committing suicide when they jump out the windows to end their misery. You have all heard of “Blood diamonds” well this is a case of “Blood IT” devices. Apple does not have to pay taxes on the millions of devices they ship back to the United States. They keep thousands of Americans from work, and implement slave like working conditions all because the U.S. does not tax imports. There are many more American companies that take advantage of this flaw in our tax system.
Here is another living example. The African Growth and Opportunity Act (AGOA) is a free trade agreement between the United States and African nations. The United States can buy products from Africa with the intent of improving trade with the continent tariff and import tax free. Our big box and retail stores support this strongly. Why? Because it is loosely managed. Many of the clothing retailers are involved in this fraud. Fraud? Yes, because the cotton used in the apparel is not from African farmers. In fact, they are excluded from the process. It is China conspiring with the retailers. They use Chinese cotton, which is grown using Chinese prisoners for free. It comes to Africa; they make the products; pay the workers $1.50 per day; put on labels “made in Kenya or Ghana” or anyplace in Africa and ship it to America tax free. So, this is a case of “blood apparel”.
Our Big Box retailers love this scam. They are making billions of immoral dollars through the loophole. If we would start taxing imported products the lure would go away and we can return to legitimate trade practices. Therefore, they oppose the Border Adjustment Tax.
Therefore, BMW auto manufacturer put a plant in South Africa. They produce the products there and ship them directly to the United States tax free. If we would have an import tax they would move that plant to America.
By exempting exports from U.S. taxes, the border adjustment would initially create higher demand for U.S. goods and U. S. dollars. At the same time, by taxing the value of imported products, the border adjustment would initially create lower demand for foreign goods and foreign currencies. Together, these two effects would cause the value of the dollar to rise significantly. Under the standard economic theory, the rise in the U.S. dollar would offset the higher taxes on these companies, leaving importers unharmed.
Let’s do this! More than 140 countries are already doing this. It will not be extreme and we can enjoy all the advantages a strong U.S. dollar can bring to our economy and help us start reducing our outrageous national debt. A strong U.S. dollar is a strong U.S. economy. Think of all those foreign companies putting plants here and hiring millions of Americans to operate them under this new law. Think of all our plants overseas coming back home because we won’t hit them with our corporate tax rate. Speaking corporate tax rate, under a stronger American dollar our corporate tax levels would decrease down to at least the 20% percent level.
It is a win, win, win proposition. Urge our Congress to approve this law. President Trump will certainly approve it because it is a part of his Tax Reform initiative. Here’s to a better America.