Border Adjustment Tax on Imports Hurts US Industries
The US House of Representatives have begun hearings on tax reform, and Americans for Prosperity released a new study that examines and quantifies the likely damage to five major US industries by the proposed border adjustment tax (BAT).
Together these industries supply about one-third of the private jobs across the United States economy and, according to the report, the impact on them would be dramatic. The report specifically covers the the manufacturing, retail and energy sectors, along with agriculture and financial services—a less-obviously impacted industry, but one growing concerned by the prospect of a BAT.
The grassroots group has consistently favored pro-growth tax reform and likes many of the principles currently under consideration, but opposes the BAT because it would damage major industries and ultimately cost consumers over a trillion dollars.
“We have a significant opportunity to achieve landmark tax reform that grows our economy this year,” said AFP Chief Government Affairs Officer Brent Gardner. “Saddling that package with a new tax that will raise prices on everyday goods and hurt job-creating American businesses is not the path forward. We’re ready to work on a truly pro-growth tax plan, but a trillion-dollar consumer tax would undermine those efforts and should be taken off the table.”
The industry-by-industry study on BAT shows that crude oil could be 25 percent more expensive in the US than in other countries around the world, raising costs for refiners in the midwest and on the east and west coasts. Gasoline prices could increase 30 to 40 cents at the pump, rippling across the economy.
Agriculture is uniquely vulnerable to retaliatory policies by a BAT tax or other discriminatory policies meant to boost US exports. More than half the cost of producing staple agriculture products like wheat and corn come from intermediate products, like fertilizer and chemicals, that are frequently imported.
The reinsurance industry is globally integrated and US insurance policyholders could collectively owe more than $5 billion if instruments and services were taxed like goods under the BAT.
High-end manufacturing jobs that middle-America needs are disproportionately sensitive to a BAT due to heavy imports of minerals and complex components. Manufacturers could face $67 billion in new taxes.
Due to low margins, retailers could easily face new liabilities in excess of their profits. Even with some currency inflation, that new tax burden on consumer goods could be about $58 billion.
“This risky new tax has the potential to handicap huge sectors of the economy, which supply almost a third of the private jobs available to American workers,” said AFP Deputy Director of Policy Mary Kate Hopkins, who co-authored the study. “Companies in these industries that rely heavily on imports will face a series of poor choices—slashing employment, hiking prices on consumers, shrinking their businesses or shuttering completely. All of those factors make this consumer tax a poor choice for policymakers who want to pass a pro-growth tax reform package.”
THE “HOMEBODY ECONOMY” AND TRADE