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Learning, Sharing, and Teaching => Investor Alley => Topic started by: celerystalks on May 31, 2017, 11:07:23 AM

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Post by: celerystalks on May 31, 2017, 11:07:23 AM
Title: Re: What do you think of the border adjustment tax?
Post by: PDXTabs on May 31, 2017, 09:56:58 PM
This seems like it would be a good way to discourage excessive consumption, encourage production and export from the U.S. economy.  Further since products for export would essentially not be taxed but even subsidized, this would dovetail well with the VAT collected in the receiving country reducing the heavy tax burden on U.S. exports.

I'm not opposed to a BAT, but I do think that it begs the question: why not just go straight to a VAT?

EDIT - Also, anything that makes the USD stronger makes me happy, although I do worry about international competitiveness at some point.
Title: Re: What do you think of the border adjustment tax?
Post by: talltexan on June 01, 2017, 08:50:02 AM
Here's a really nice Greg Mankiw blog post about this tax reform plan:
Title: Re: What do you think of the border adjustment tax?
Post by: RichMoose on June 01, 2017, 10:30:46 PM
 My view is that its a gimmicky, compliacged VAT painted in the Republican glow of "pro-business" and anti-world. Bottom line is its going to cost American consumers just like a VAT does and it will have minimal to no impact on protecting American jobs.
Title: Re: What do you think of the border adjustment tax?
Post by: talltexan on June 02, 2017, 06:46:12 AM
Don't forget that the VAT is paired with (I presume) income tax reductions. If they're extremely regressive income tax cuts, then it might be difficult to swallow economically, but it's changing to a more "efficient" structure economically.
Title: Re: What do you think of the border adjustment tax?
Post by: RichMoose on June 02, 2017, 10:00:00 AM
But if it causes an increased demand for U.S. goods and services abroad that should cause the dollar to get stronger.  If the dollar is stronger, this will cause our purchasing power with respect to foreign imports to increase.  So although the cheap stuff from abroad would get more expensive, people should be able to still afford it with stronger dollars.  Or alternatively it might just be more cost effective to manufacture it here, in which case the good could still be supplied but without the need for a foreign import.

Can you explain more why you think it would have minimal to no effect on American jobs?  The purpose of the BAT is to allow the revenue from exports to essentially not be taxed while allowing all domestic costs for production to be deducted from the tax base.  And also to not allow a deduction of foreign costs of production.  It seems to me that this would be a really strong incentive to employ workers in the U.S. for domestic consumption as well as for exports, and to make foreign imports for domestic consumption relatively more expensive, since only domestic labor and manufacturing costs could be deducted.

Why would a BAT increase demand for American goods and services abroad? Almost every other developed economy charges a VAT regardless of the origin of the good/service. What a BAT might do is move some production onshore, reducing imports from other countries which could result in a stronger dollar. This would likely have negative impacts on certain American exports. What a BAT is more likely to do is substantially increase the price of low cost goods, disproportionately hurting low income people.

I don't think it will have huge positive impacts on American jobs because the US is a consumer driven economy. Large trade deficits are dominated by energy, cars, and cheaper consumer products. While shale oil has reduced the energy deficit, it would be nearly impossible for the US to sustainably produce all of it's own energy needs in the current environment. Regarding consumer products, it's also a bit of a pipe dream to believe that the US will manufacture it's own sneakers, small appliances, and cheap TVs anytime soon.

Labor resources are much better directed to areas where the US has an advantage: tech development, military equipment, financial services, etc. Nevermind that a lot of lost manufacturing in higher value products (cars) is already returning to the US as workers become more productive and costs and time of shipping reduce advantages of overseas manufacturing. This especially applies to German, Korean, and Jap brands. Global economies are continually evolving.

Also, the US should count on forms of trade retaliation for implementing a BAT as it's a deliberate tax on imported products only.

My view is simply that a broad-based VAT is easier to manage and will achieve a similar end result: higher costs of goods and services in exchange for more reliable government revenue. It will have less effect on currency and is unlikely to start trade spats. A similar drop in corporate income taxes will encourage better domestic investment environment and repatriation of profits.

If self sufficiency and reduced overall trade is the end goal, my position is mute.
Title: Re: What do you think of the border adjustment tax?
Post by: RichMoose on June 03, 2017, 11:16:37 AM
L.A.S., I'm not sure if I'm misunderstanding you, or the proposed legislation and it's affects. But I dont think Americans can't have it both ways with this tax (even though that's clearly the Ryan sales pitch).

While it will take some time for all of the effects to work their way through the system, this corporate tax scheme will have broad effects and cost consumers in the end. That's what all taxes do, regardless of how they are presented.

1: It is almost guaranteed the dollar will increase in value. This means exports will cost more in other currencies, therefore reducing demand for US goods and services abroad. It will make imports cheaper, but the tax will drive up the cost at the retail point. End result is that prices for consumers will be roughly the same or higher in real dollar terms for most low value products. Lower income Americans will be worse off while higher income Americans will be better off. This will further increase the class struggle and diminish the value of your society.

2: I do not see how anyone could make a logical argument that this does directly penalize products produced by other countries (often where existing trade deals exist). It may be cloaked in corporate income tax, but it amounts to a tariff on imports. That will almost surely result in retaliation by exporting countries, as well as WTO challenges and more. American influence and global relationships will further deteriorate.

3: While its clear that US politicians are shortsighted and fear implementing a sales tax on consumers, this doesn't mean bold proposals shouldn't be taken seriously. The Republicans control the entire government and have the power to make great changes, the problem is that they're too power hungry and divided to do things right. Republicans want lower taxes on the wealthy and corporations, a bigger military, lower spending, no budget deficits, no trade deficits, reduced social programs, a bigger middle class, and the ironies continue on and on. I'm sorry, but as a neighbour its almost laughable and I thought our government was poorly run.
In the 1980s, our government introduced a VAT and reduced tariffs and a Manufacturers Tax (basically a type of targetted corporate tax) and subsequently lost the next election. It was the best thing that could happen though as it hugely stabilized government revenues. Not surprisingly after campaigning against the tax aggressively in the election, the next government realized the benefits of VAT and kept it in place.
Citizens should be more critical of government spending and less critical about forms of taxation. With taxes, fairness and meeting spending requirements should be the main goals.

4: Individual self sufficiency and national self sufficiency are two very different things. Reduced trade volume has widespread impact. Just compare low trade volume countries and high trade volume countries (as a % of GDP) as an example. The correlation between trade volume and prosperity is substantial.

I understand this is largely an emotional instead of a logical tax proposal. All I'm saying is that this does not mean its smart policy.
Title: Re: What do you think of the border adjustment tax?
Post by: DavidAnnArbor on June 03, 2017, 03:08:45 PM
Here's Paul Krugman's take which backs up what Mr. Rich Moose stated already.
Title: Re: What do you think of the border adjustment tax?
Post by: talltexan on June 07, 2017, 09:21:17 AM

Hmm...  It's my understanding that its at least the goal of Mustachainism to increase self-sufficiency and reduce unnecessary mindless consumption (and therefore some trade).

Wishing to gain the skills that allow for micro-self-sufficiency is different than imposing Autarky on society...people should get to benefit from the lower prices that trade produces for them so that they can build up their staches faster.