The United States tax code clearly needs reform, but one plan being proposed by House Republicans—border adjustment—will have a significant negative impact on consumers.
In our global economy, so many of the products we use every day are imported to the U.S.—the Apple iPhone you’re checking Facebook on, the Nike tennis shoes you work out in, the Jose Cuervo tequila that’s in your happy hour margarita.
Under border adjustment, a company would be taxed based on where their products are sold, not where the company is headquartered. Supporters of the strategy say it’ll keep businesses from moving abroad to try to escape the United States’ high corporate taxes.
But the real result will be consumers paying much more to cover the added expenses.
Under our current tax code, companies pay a 35 percent corporate income tax on a product’s profit, regardless of if it’s made in the U.S. or imported from another country. The tax plan from House Republicans lowers that rate to 20 percent, and only applies to profits made in the U.S., both of which are solid, pro-growth reforms. However, if border adjustment is included, U.S. companies that import materials and products will no longer be able to deduct those costs from their taxable income, effectively slapping a 20 percent tax on everything that is imported.
Target is one of the top importers in the U.S. Say the company imports a table at a cost of $75 and marks it up to $100 when selling it to you. With other expenses and fees, they make a $10 profit. Right now, Target would pay $3.50 in corporate income tax based only on their profit. But if border adjustment were implemented, they’d be taxed on the $10 profit and the $75 they paid to import the table for a final tax bill of $17.
Who do you think will cover the added $13.50 in taxes? That’s right—us, the consumers.
If lawmakers really want to incentivize companies to stay in the U.S., they should make our tax code simpler and fairer for all. Companies who would face the new import tax would likely just raise their prices to cover the additional taxes, but consumers can’t afford to pay so much more on products we use every day.