Friday, February 24, 2017

Trump on the border adjustment tax

Courtesy of a Reuters interview, here's Trump on the border adjustment tax, with my annotations after each sentence:

“It could lead to a lot more jobs in the United States." Good work by his standards, as this is less false than any of the claims that follow. Replacing the corporate tax with the destination-based cash flow tax (DBCFT) could increase U.S. investment, which could conceivably increase U.S. jobs, or at least U.S. wages, over some time period by some amount. How fast and how much is unclear.

"I certainly support a form of tax on the border because everybody else does." Powerfully reasoned grounds for supporting it. Not true, of course, that "everybody else does."

"We’re the only country, we’re one of the very few countries, possibly the only country, that has no border tax." True as to the VAT. He evidently doesn't know the difference between the DBCFT and a VAT. Most of the quotes below likewise appear to be based on his classifying the DBCFT as a VAT. Needless to say, he is unaware that no country has ever had a DBCFT.

"And that’s not a tax to the consumer, because that’s going to be a tax to companies and it’s going to be a tax to other countries much more so than it is to the consumer. That’s a tax to other countries.Three falsehoods in a row.  (For them to be lies, however, there would need to be an underlying mental state of knowledge.) Try finding an economist who doesn't think a VAT is a tax on the consumer. It's remitted by the companies, but few if any economists would call it a tax on the companies. It's certainly not a tax on other countries. That would require the US to be successfully exercising monopsony power when it applies the tax to imports.

"And what will happen is, don’t forget there is no tax if we make our product in the United States. So I don’t consider it a tax." Does he realize that VATs apply to domestic consumption? Apparently not. It's true that, under the DBCFT, the business gets to deduct wages. But they're also generally included in income by the employee. Or perhaps he's referring to the fact that there's no tax if the item is exported. But I would say that a tax on domestic consumption, like a tax on domestic production, is still in fact a tax. He may almost grasp that there are arguments for replacing taxes on domestic production with taxes on domestic consumption, but, it would seem, not very clearly.

"That’s a tax if companies are buying their product outside of the United States. But ... if they make their product in the United States, there is no tax. So what is going to happen is companies are going to come back here, they’re going to build their factories and they’re going to create a lot of jobs and there’s no tax.” This largely repeats claims that I addressed above. Note how it's both "a tax to the companies" and yet when they operate here "there's no tax." And also, of course, taxing domestic consumption apparently equals taxing other countries.

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