Border Adjustment Tax

An economist named Alan Auerbach had the sincere intention (yes, sometimes economists do have sincere intentions) of using the national tax system to help U.S. industries with what he called a border adjustment tax (BAT).

Basically, a “value-added” tax on imports, while profits from exports would be exempt. Auerbach’s thought was that the United States would become the perfect place to locate a business as opposed to operating from abroad. For example, if a U.S. company ships batteries to Taiwan to make cell phones, the profit the battery company makes on the export would not be taxed. However, if a U.S. company purchases batteries from Singapore and makes the phones here, the money made on the sale of the phones is taxed. There would also not be any deductions for the cost of the imported batteries.

You might think this would increase the cost of the phone to the consumer... but Auerbach believes the BAT would strengthen the U.S. currency, which would then reduce the price of imported goods. Some believe that the increase in prices on imports would cause inflation, while others counter that foreign demand for our exports would skyrocket, and strengthen the value of the U.S. dollar. The Republican party supported the proposal in 2016, but groups such as Americans for Prosperity, funded by the infamous Koch brothers, oppose it, so it may not stand much of a fighting chance.