Why the Border-Adjustment Tax Won’t Work

border-adjustment taxI usually write about crime, the courts, and writing, but here’s an article about the border-adjustment tax I submitted for the opinion page of the Minneapolis daily newspaper.  I thought you may be interested since the topic is being considered by congress right now.

I realize an undergraduate degree in Economics doesn’t make me an expert on international trade and “border-adjustment taxes,” but any of us can read history and discover that the U.S. has been through this process before—with disastrous results.

The border-adjustment tax is an effort to protect American business by slapping taxes on many imported goods from other countries—which makes them more expensive and, as a result, American goods cheaper.  Also, the government would get all the tax money “for free.”

Sounds good, huh?  Hearings are going on right now in Congress about the idea and many Republicans are pushing it hard.  (This is one way for President Trump to get the Mexicans to “pay for the wall”—through increased taxes on the things they sell us)

Our country has been here before.  This is nothing new, but many people in Washington don’t read history.

Running for president in 1928, Herbert Hoover promised Midwest farmers relief from foreign competition by raising tariffs on agricultural products.  He was elected with Republican majorities in both houses.  When Congress offered a bill to raise tariffs, called the Smoot-Hawley Tariff Act in 1929, over 1,000 economists opposed it.  President Hoover had second thoughts, but in the end agreed with his party and signed the bill which raised tariffs on agricultural and industrial products alike—in an effort to protect and promote American business.  (Sound familiar?)

The results were disastrous.  Canada and several other countries, including Great Britain, France, and Germany, all retaliated with their own tariffs.  From 1929 to 1933, American imports fell 66% and exports fell 61%.  Our former trading partners shifted their trade to other countries at America’s loss, the dollar didn’t rise to compensate for the increased cost of imported goods, (as is predicted by proponents of today’s border-adjustment tax), and most historians agree that the Smoot-Hawley Tariff Act exacerbated the Great Depression.

By 1934, President Franklin Roosevelt had new legislation which granted the U.S. the right to reduce tariffs—which it did.

Let’s not repeat the mistakes of our past.  Today, we are even more interlocked with hundreds of other countries in foreign trade.  If the border-adjustment tax passes and our imports/exports drop as they did in 1930, it means many of the products we buy today, like our electronic tools, will be more expensive.  Sales of our manufactured products will fall as other countries erect their own tariffs.  Rather than increasing jobs and production here, the tax will depress both.  The results of a border-adjustment tax will be even worse this time around.

About Colin Nelson

Colin T. Nelson worked for 40 years as a prosecutor and criminal defense lawyer in Minneapolis. He tried everything from speeding tickets to first degree murder. His writing about the courtroom and the legal system give the reader a "back door" view of what goes on, what's funny, and what's a good story. He has also traveled extensively and includes those locations in his mysteries. Some are set in Southeast Asia, Ecuador,Peru, and South Africa. Readers get a suspenseful tale while learning about new places on the planet. Colin is married, has two adult children, and plays the saxophone in various bands.

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