Industry Executive Pushes for Border-Adjustable Tax Framework at Ways and Means Hearing
Atlas Tool Works Chief Alignment Officer Zachary Mottl championed the border adjustability provisions of the House GOP tax plan during a May 18 House Ways and Means Committee hearing on tax reform. In written testimony (here) and during the hearing, Mottl said such tax provisions can neutralize a skewed international taxation playing field in which most U.S. trading partners use value-added or goods-and-services taxes averaging 17 percent, acting as tariff and subsidy replacements. He pointed out that when Mexico abolished most taxes on U.S. goods through NAFTA, it also raised its value-added tax rate, “erecting a new tax ‘wall’” against U.S. goods. “Exports are cheaper due to the VAT rebate combined with the domestic tax cuts,” Mottl said. “Imports are more expensive because the VAT is applied with no offsetting domestic tax reduction for foreign suppliers.” Countries often “replace” tariffs lowered through trade agreements with consumption tax increases and cuts in non-border-adjustable taxes, while maintaining similar overall tax revenue, he said.
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Because a nation’s tax policy is unilateral, it doesn’t require agreements with other nations or permission from international bodies, and won’t risk sparking a trade war, Mottl said. Creating a 12 percent to 15 percent U.S. goods and services tax would be revenue-neutral and bolster U.S. trade competitiveness, he said. “Tax policy and trade policy go hand in hand and I believe that tax policy has far greater effect on trade than any trade agreement ever could,” Mottl said. “Good tax policy, one that encourages domestic production and exports, is in effect good trade policy.”
Rep. Devin Nunes, R-Calif., during the hearing made the case that moving to a cash flow tax system would simplify the current system based on profit accrual, and allow businesses to better determine the most beneficial areas in which to invest. S&P Global CEO Douglas Peterson in written testimony (here) also said that border-adjusted tax systems enacted in more than 130 countries have tilted the playing field “against U.S. companies .... Foreign companies can sell goods and services from a VAT country into the U.S. without paying VAT in the source country and without any border-adjusted tax upon import to the U.S.,” he said. “In contrast, goods and services produced in the U.S. and sold into a VAT country bear a tax upon importation at rates that can reach 20%.”