Phased-In Border Adjustment Tax Plan Is A Non-Starter

Washington — According to reports, House Ways and Means Committee Chairman Kevin Brady (R-TX) “floated a five-year phase-in to his controversial ‘border adjustment’ idea on Tuesday in a bid to blunt mounting opposition to the concept.” Heritage Action released the following statement from chief executive officer Michael A. Needham:

“Phasing in flawed, unnecessary policy is not a solution; in fact, it is likely to create more problems than it solves. Rather than creating additional economic uncertainty, congressional leaders need to declare the border adjustment tax dead. Only then can a serious conversation on advancing real, pro-growth tax reform move forward.”

In a recent paper, The Heritage Foundation’s tax and budget policy analyst Adam N. Michel warned:

“The economics of this new tax proposal are poorly understood and the subject of academic disagreement. What is clear from the available evidence is that economists’ models of how border adjustments affect trade flows, currency markets, consumer prices, and internationally held assets are imperfect; and if nothing else, a border adjustment in the context of the House blueprint presents unnecessary economic risks to the U.S. economy.”

The original Wall Street Journal report notes the potential unintended consequence of a phased in border adjustment tax:

“If the currency did adjust quickly, with the dollar rising as much as 25%, importers would get a windfall benefit in the early years from cheaper foreign products and then lose that edge as the border adjustment takes effect.”

Related:
Heritage: Pathways for Pro-Growth, Fiscally Responsible Tax Reform
Heritage: This Key Reform Must Be Central to Any New Tax Plan
Heritage: Time to Move Past the Proposed Border Adjustment Tax
Heritage: Congress should leave the border adjustment tax behind

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