February 24, 2017

The "Trump Tariff"

My go-to source for respectable Trump-friendly political news has become Investor's Business Daily. Unlike the WSJ, this business rag is actually hawkish on illegal immigration, at least to a point. But with all of the Trump love I find on its pages I have felt a certain unease with my earlier characterization of the source as "respectable." My blog brother has withheld any ad hominem dismissals thus far, but I have imagined such being drafted and saved for my post that finally broke open the dam of his disapprobation. (Yes, past tense, by way of foreshadowing.)

Fortunately I can now offer proof that IBD's editors are not closet Breitbart hacks, with the opinion piece Will The Border Tax Work? Nobody Knows, Which Is Why It's A Bad Idea.

The tax is part of a wholesale rewrite of the corporate tax code proposed by the House GOP leadership, which they say will vastly simplify taxes, lower rates, increase exports, and help grow the economy.

The plan would swap the current 35% corporate income tax for a 20% consumption tax - or in policy-geek-speak "a destination-based cash flow tax." Because exports are consumed abroad, they'd be exempt from the tax. Imports, however, would face a 20% "border adjustment tax."

The idea has generated lots of attacks, including from this page, as well as claims that it would violate the terms of the WTO, hurt retailers like Best Buy and Target that rely heavily on imported goods, even hurt tourism.

The biggest problem with this tax reform, nobody has any idea what it will do. That's the conclusion of researchers at the Mercatus Center at George Mason University, who point out that because it's an entirely novel idea, "there are no real-world examples of a destination-based cash flow tax."

Its impact "on economies, exchange rates and trade balances is purely theoretical." The authors go on to explain these uncertainties in great detail.

The bottom line is that "the economics of this new tax proposal are poorly understood, and it presents unnecessary risks to the U.S. economy."

So there you go, the boys at IBD are not the protectionist, economic nationalists that anyone who misses a chance to vilify the new president are immediately assumed to be, at least by some. Instead, they pine for some good old fashioned corporate tax reform:

All we need to do is follow the lead of our big trading partners: Sharply lower the corporate income tax rate and eliminate loopholes to broaden the base. The foreign earnings problems can be solved by "territorial" tax - which all but six OECD countries have adopted and which exempts foreign earnings from domestic taxes.

I'm not sure but I think this "territorial" tax amounts to a tax cut on U.S. corporations, to the extent they earn profits abroad. Which means it is revenue negative. Which means the static scorers in the CBO are going to put it in the column that Democratic legislators call "government spending." Which is why the House of Representatives wanted the border adjustment tax in the first place. Sigh.

I'll try to end on a good note. At least we have these tea leaves to read from the White House:

Trump has been hot and cold about the border adjustment tax. On Thursday, he told Reuters that he thought the tax "could lead to a lot more jobs in the United States." On Friday, Trump's top economic advisor reportedly said it was a nonstarter.

The Art of the Deal.

Posted by JohnGalt at 7:00 PM | Comments (2)
But dagny thinks:

Maybe I don't understand but who says its never been tried? I deal with it every day. In Colorado its called a USE TAX and the City of Northglenn I'm sure among others has a nasty one.

Posted by: dagny at February 24, 2017 8:17 PM
But jk thinks:

Au contraire! I am a huge fan of IBD, their Ed Page, and their Facebook live market updates. Enough that I feel a bit a bit guilty for enjoying so much free content without subscribing. But -- Jeeburz -- Rupert is bleeding me so dry for the WSJ these days, I don't have a couple coppers to rub together for any other source. (Kidding but not kidding, the days of inexpensive digital-only subscriptions is long past. Without Taranto's BOTW this might be my last year.)

I'll say that the WSJ Ed Page is too hawkish. I'm still a "Deepak Lal libertarian" preferring a much more muscular foreign policy than my libertarian buddies. But the WSJ has a bomb early, bomb often mentality that disturbs. And they're East Coast elitists on guns. They're squishy on drugs. I am by no means all in.

But they have led the way on free trade and immigration. They called out President Clinton for his failure to denounce the anti-globalization Seattle protesters in 1999, rightly celebrating his trade achievements although they opposed most of his other policies.

We love consistent philosophy and reason 'round here. The exact methods and scale of protectionism is as yet undetermined. But the President's belief that it is ipso facto better to build air conditioners in Indiana than Mexico will ultimately lead to some bad outcomes.

Posted by: jk at February 25, 2017 10:25 AM

October 21, 2016

Otequay of the Ayday

The establishment also recoiled in horror from Milwaukee Sheriff Dave Clarke's declaration that it is now "torches and pitchforks time."

Yet, some of us recall another time, when Supreme Court Justice William O. Douglas wrote in "Points of Rebellion":

"We must realize that today's Establishment is the new George III. Whether it will continue to adhere to his tactics, we do not know. If it does, the redress, honored in tradition, is also revolution."

Baby-boomer radicals loved it, raising their fists in defiance of Richard Nixon and Spiro Agnew.

But now that it is the populist-nationalist right that is moving beyond the niceties of liberal democracy to save the America they love, elitist enthusiasm for "revolution" seems more constrained.

What goes around comes around.

Patrick J. Buchanan - An Establishment in Panic

Posted by JohnGalt at 4:22 PM | Comments (0)