Center for Freedom and Prosperity Foundation
For Immediate Release
Tuesday, January 3, 2017
New CF&P Paper Sounds Alarm on Proposed “Border Adjustment” in House GOP Tax Plan
VAT-like tax would pave the way for bigger government
(Washington, D.C., Tuesday, January 3, 2017) The Center for Freedom and Prosperity Foundation released today a new paper on the inclusion of border adjustability in the House GOP corporate tax reform blueprint. Authored by CF&P Director of Policy and Communications Brian Garst, the Policy Brief argues that the full long-term political and economic consequences of the change — which would impose a significant tax on all imports and a special exemption for all exports — are not being taken into account.
Entitled “Political and Economic Risks of a Destination-Based Cash Flow Tax,” the paper cautions against the hasty move to a destination-based cash flow tax (DBCFT). It gives four reasons why Republicans may be shooting themselves in the foot: 1) The DBCFT is similar to European-style VATs, which have served as a fuel for big government on the continent; 2) The WTO is unlikely to approve the tax as proposed, increasing the odds it will turn into a straight VAT; 3) There is reason to doubt that currency will adjust as completely as proponents suggest, leaving many consumers left paying higher prices; and, 4) as left-leaning supporters admit they desire, the tax will undermine international tax competition and thus make it easier for governments to raise taxes in the future.
CF&P President Andrew Quinlan said, “Tax reform can yield big benefits for America, but it’s very important to get it right. Unfortunately, the House GOP is considering doing the wrong thing, even if for the right reasons. We hope they’ll weigh the risks of this quasi-protectionist scheme and reconsider.”
The paper’s author, Brian Garst, commented, “Proponents of the DBCFT should recognize that those who want to raise taxes and grow government will take over at some point, and they’ll be thankful that the groundwork was laid for the imposition of a VAT in the United States.”
Additional comments from experts:
Dan Mitchell, Senior Fellow at the Cato Institute, said, “Destination-based tax systems are designed to undermine tax competition, which is a top selling point for those on the left who support the DBCFT. Combined with the fact that this system is likely a stepping stone for a VAT, the DBCFT is both risky and unnecessary.”
Mercatus Center Senior Fellow Veronique de Rugy added, “The current plan is based on wishful thinking and threatens to undo decades of hard work from free market reformers. Proponents can cross their fingers and hope that the massive consumer price increases will be entirely offset by currency adjustments, or that future politicians won’t jump at the opportunity to raise taxes in an environment where taxpayers can no longer flee from onerous rates. Unfortunately, reality isn’t likely to prove so accommodating.”