Sunday, December 18, 2016

Is Trump Going to Backdoor a Type of Value Added Tax on Americans?

He is going to have to pay for his corporate tax cuts somehow. It is certainly not by overall government spending since he wants to institute trillions in new infrastructure and military spending.

Showy cuts on specific items will be nowhere near enough to balance the tax cuts.

Economist magazine explains what Donald Trump will likely really try to do:
SINCE Donald Trump won America’s presidential election investors have salivated over the prospect of lower taxes. Mr Trump has promised to cut corporation tax, a levy on firms’ profits, from 35% to 15%....

 In fact, he wants to ignore foreign activity altogether, including profits made selling American goods abroad. Meanwhile, firms would no longer be able to knock off the cost of imported goods when adding up their profits. In combination, these two changes are dubbed “border adjustment”.

This would make America’s corporate tax very similar to a value-added tax (VAT), a kind of border-adjusted sales tax, says Kyle Pomerleau of the Tax Foundation, a think-tank. Most rich countries have both a VAT and a corporate tax (see table). When, say, Rolls-Royce exports a jet engine from Britain to France, it pays French VAT on the sale and British corporate tax on its profits. But while America levies the corporate tax on exporters’ profits, it imposes no VAT on imported goods (except for state and local sales taxes). Mr Ryan’s proposal would more or less reverse this.
Fortunately, there is the possibility that such a program wouldn't pass in Congress.


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