Wednesday, December 14, 2016

Will Trump Implement Destination-Based Taxes?

The idea that Donald Trump will cut taxes across the board is nonsense.

While he will cut taxes in certain areas, the tax burden will, for the most, part only be shifted.

John Authers of the Financial Times discusses what may be coming:
Barring some amazing and unforeseeable political breakdown, the Trump administration and Republican-controlled Congress will between them shepherd through a significant change in corporate taxes in the near future...

The Trump administration has said little about its tax plans since the election, but the brief published version on the campaign website suggests that this could be more than a classic straightforward tax cut. Rather, the idea could be to use a radical tax shake-up to force companies into abandoning the behaviour that Mr Trump attacked on the campaign trail, and source more of the goods they sell in the US....

 This advocates a “cash-flow based approach that will replace our current income-based approach”, which will be applied “on a destination basis”. This means that products, exported outside the United States will not be subject to US tax, regardless of where they are produced, while imports will be taxed wherever they were produced.

In an extreme example,[Mark Lapolla of Sixth Man Research]  points out, a company that exports all its products would be taxed as at present, while a company selling only imported goods would get no credit for its cost of goods sold, and see its net profit reduced by 75 per cent.

This is obviously a hugely ambitious and complex reform, in which many vested interests will try to take a hand, but Messrs Ryan and Trump can agree on its objectives. If a reform along these lines were to happen, Mr Lapolla suggests that the greatest problem would be for retailers who rely on imports for their products. The Walmart business model, for example, would be imperilled...

Goldman Sachs lists apparel as the sector with the highest net imports, and therefore most likely to be harmed by destination-based tax, followed by computers, cars, electrical equipment and primary metals. Relative beneficiaries include transport groups, from aircraft to railroads, publishers and media, and agriculture.
"The greatest problem for retailers"? "The Walmart business model, for example, would be imperilled..."? That means consumers will get screwed.

Imagine my surprise.

And can a tax on OPEC oil be far behind?



  1. Can't the argument be made that competition in these markets (apparels, computers, toys) is so fierce that shareholders would take a bigger hit through lower profit margins than consumers would through higher prices?

    Walmart is a rent seeking whorehouse anyway.

  2. Cutting the corporate tax from 35% to 15% isn't a tax cut across the board?