Congress has a rare opportunity in the coming months to replace our nation’s broken and dysfunctional tax code with one that is simple, efficient and fair for all Americans. But one provision being debated would do the exact opposite — imposing $24.5 billion in new taxes on Michigan businesses that import goods, while threatening thousands of their jobs.
Those are among the findings of a new report by my organization on the effects of a “border adjustment tax” that would impose on U.S. companies a new 20 percent tax on all goods they import, whether final products, component parts or raw materials. Michigan’s congressional delegation should do everything it can to keep this harmful provision out of any tax reform legislation.
Start with the harms the tax will do to Michigan’s businesses, especially importers — 95 percent of which are small businesses. If the tax had been in place in 2014, it would have cost each of the state’s 8,386 importers an average of $2.9 million that year. That’s money that could otherwise be spent on higher salaries and more benefits for employees, or creating new jobs.
The state’s retail industry would be especially hard hit, as factors like high taxes, government mandates and costly regulations in recent decades have forced many retailers to depend on imported goods. With retailers accounting for 467,400 jobs in 2015, this new tax could jeopardize thousands of careers.
There’s also the impact on family budgets. Studies have found much of the tax will be passed on to consumers in the form of higher prices for everyday goods. According to an analysis by the National Retail Federation, the average family could see expenses rise up to $1,700 in the first year alone. Clothing costs could rise over $400 per year, while another study found gas prices could rise by 30 cents per gallon or more.
These burdens will fall hardest on the poorest families, who already spend a larger portion of their income on clothes and driving to work.
Proponents argue that if this new tax is enacted, the U.S. dollar will strengthen relative to other currencies, and the prices we pay for imports will remain unchanged. This theory, however, has never been tested outside of the classroom. Even the chairwoman of the Federal Reserve has cast doubt on these claims, recently saying it is “very uncertain” what exactly would happen.
Ultimately, this new tax is an economic experiment that is not likely to end well for the ordinary Michiganian.
Comprehensive tax reform is a worthy goal — one that my organization strongly supports. But it must be done in a way that doesn’t increase the burden on American families, or unfairly handicap certain sectors of the economy.
Rather than imposing a new 20 percent import tax to pay for tax cuts elsewhere, Congress should balance tax cuts with an equivalent amount of spending cuts. This can be achieved by eliminating tax loopholes for special interests, ending wasteful government programs, and shrinking the size of the federal workforce, to name just a few alternatives.
Federal lawmakers have a rare opportunity to fix the tax code and promote prosperity for all Americans, but this new import tax is the wrong approach. Michigan’s members of Congress should stand firm in opposition to this dangerous provision.
Nathan Nascimento is the vice president of policy at Freedom Partners Chamber of Commerce.