I wouldn’t say idiot but the two are in fact similar. More exactly, a VAT of 15% (say for example) and the elimination of a 15% payroll tax on all wages is exactly the same as a 15% border adjusted cash flow tax on all employers but retention of a 15% tax on all payrolls. Or IOW the border adjusted cash flow tax is a VAT with the additional condition that companies subject to it can deduct domestic payroll expense from their ‘value added’.
Because, a VAT is indeed also ‘border adjusted’ in almost every real world application. Imports are subject to the VAT, exports are excluded (the reason you can apply for the VAT rebate at the airport leaving eg. EU countries). Which makes sense. Analogizing to another cousin, the sales tax, why would you expect to charge foreigners domestic sales tax? The tax is being paid by consumers in the country, for govt services in the country, basically.
Neither the VAT nor border adjusted cash flow tax are macro trade policies in theory because the value of the currency will change to reflect the treatment of imports and exports under the tax. And this isn’t theoretical as in far fetched ivory tower, but likely to be pretty real in practice. On a static basis you’re making imports less attractive and exports more attractive. That means less supply of USD’s from people exporting to the US who want to change them back to their currency, and more demand for USD’s to buy those cheaper US exports: value of the USD rises.
The main effect on trade, assuming other countries accept the tax as fair, which the VAT comparison says they should, but a political question whether they would*, is it eliminates any benefit in US domiciled co’s from being acquired by foreign ones to avoid US corp tax (‘inversions’), and the benefit of placing operations like factories overseas for corporate tax purposes. It wouldn’t however necessarily close the cost gap between offshore and US production cost by anything like 20%…because of currency adjustment.
*the proposed tax could be construed as against WTO rules, though the VAT plus payroll tax cut wouldn’t be…though the same thing.
Context always rules. In that paragraph I was refuting the nonsense you said, not that of Trump.
Which is why it would be nice if you stop repeating it. Nobody should be comparing the size of the Mexican tariff to the GDP. Nor does the actual value of the GDP influence peoples’ thinking. Nor does the growth in GDP matter if people are not using it as a determiner.
The critical point for the thread is in the Marketwatch link Frankenstein Monster gave, when it noted that Democrats consider such a tariff a regressive tax on consumers, which is exactly what it is. As such it will affect Trump’s base far quicker and far more noticeably than it can help the economy. Will they understand this and put pressure on their representatives? Will Congress nonetheless back business interests in ways that will match their rhetoric? How closely will the final bill match the administration’s plan? Those are the interesting things to watch for.
The other dimension to this is the proceeds go to a project that many consider a huge boondoggle as well as morally offensive. So, does that mean there will be a boycott of tariffed products? That would be a double whammy against Mexican producers. I’ve got to wonder if that would lead to a black-market to avoid the tariff but not punish Mexico. That would ironically mean increased illegal boarder activity and prohibition era like crime.
I didn’t state any nonsense. Rather I demonstrated with actual numbers why your point is nonsensical. The difference between the recent and previous 30 yrs (before 2008) growth trend amounts to a $1.7tril bigger GDP per annum we would have had by now if the economy had continued to (geometrically) average 3% real growth rather than the 1.8% it actually averaged in 2008-16. That’s a significant number and merely your unfounded assertion it doesn’t affect actual people’s thinking. The more rational inference is that it’s indeed part of what makes people believe the economy isn’t good, that it’s growing significantly more slowly than it used to amounting to cumulative $trillions in output loss compared to the previous trend. Although that doesn’t exclude class or regional (a big part of Trump’s appeal) differences in distribution being factors also. It doesn’t have to be one or the other.
$60bil/yr OTOH really is small economically. Though note I didn’t exclude that politicians could successfully make hay out of the effect that would have on particular parts of the economy, maybe they could. But expecting the effect to be anything like that of the slow down in the overall growth trend has no reasonable basis IMO.
If Juan drives a truck load of green onions (that is the usual item I see “grown in Mexico”) through the USA to Canada, will he have to pay taxes on them?
I’m not sure. I wonder how it worked pre-NAFTA? I tried to look it up but NAFTA has been around for so long that it is difficult or my Google-Fu is weak today.
The proposed tariff reminds me a little of the logic of Bangkok bar owners. Whenever business slows down, do they lower their prices or offer specials? No. Almost without exception, they raise their prices, figuring they’ll keep the same level of business and not understanding that customers will stay away in larger droves. Not exactly the same situation, I know, but implement tat tariff and people are going to be buying a lot less.
Someone was pointing out to me last night that something like 40% of America’s corn syrup is exported to Mexico, who could get the same amount from Argentina quite easily if it decided to stop doing business with the US. That’s just one example.
(At least, I think it was corn syrup. If not, it was something that sounded similar.)
but the two are in fact similar. More exactly, a VAT of 15% (say for example) and the elimination of a 15% payroll tax on all wages is exactly the same as a 15% border adjusted cash flow tax on all employers but retention of a 15% tax on all payrolls. Or IOW the border adjusted cash flow tax is a VAT with the additional condition that companies subject to it can deduct domestic payroll expense from their ‘value added’.