The Trump administration raised plenty of eyebrows on Thursday by suggesting that new taxes on Mexican imports could pay for a border wall with Mexico. Here's what we know:
What Did The White House Say?
White House press secretary Sean Spicer spoke with reporters on Thursday afternoon. Here are the quotes:
“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico.
If you tax that $50 billion at 20 percent of imports – which is by the way a practice that 160 other countries do – right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous. By doing it that we can do $10 billion a year and easily pay for the wall just through that mechanism alone. That’s really going to provide the funding.”
“This is something that we’ve been in close contact with both houses in moving forward and creating a plan.”
“It clearly provides the funding and does so in a way that the American taxpayer is wholly respected.”
“We are probably the only major country that doesn’t treat imports this way.”
“This gets us in line frankly with the policies that the other countries around the world treat our products.”
What Does That Mean?
The simple version: People understood this to mean that there is a plan taking shape now, which the White House is pushing for, that would introduce new taxes on imports from Mexico.
The slightly less simple version: Spicer may have been referring to a simple tax on imports from countries including Mexico, or a more complicated corporate tax reform proposal that involves "border adjustment," changing the way companies pay tax on the things they import and the things they export. Most people following the politics of trade and tax reform think this is what Spicer was talking about.
Border adjustment was the star of a House Republican proposal, first released in June, that would overhaul how corporate taxes are calculated. Sales of exports would not be taxed at all, and companies could no longer deduct the cost of imports from their taxable income, as they can today — effectively introducing a tax on imports. Taxes on corporate profits would be reduced to 20%.
Economists have a set of elaborate theories for how this system would balance itself out by making the US dollar more valuable, and we're not going to get into this because it gives us a headache. Here's how the Tax Foundation explains the whole thing.
Does Donald Trump Want This To Happen?
President Trump's stance on all this has been ambiguous at best. Two weeks ago, he told the Wall Street Journal that border adjustment was "too complicated," saying that "anytime I hear border adjustment, I don’t love it... Because usually it means we’re going to get adjusted into a bad deal. That’s what happens."
But at the congressional Republican retreat in Pennsylvania on Thursday, Trump said, "We’re working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route,” an apparent nod to Republican border adjustment proposal, the Journal reported.
Will This Happen?
First, any of these changes would involve a fight in Washington, and potentially an international dispute. A straight-up import tax on Mexican goods could breach American obligations under trade agreements — not to mention wreaking havoc on the prices of Mexican imports in the US.
A complicated tax reform proposal, including border adjustment, would involve all the DC fistfights you would expect. There would be real losers under the Republican proposal: First among them would be retailers like Walmart, which bring in a lot of cheap imports to sell to Americans and export very little. The National Retail Federation has come out strongly against the idea.
And Republican Senator Lindsey Graham is not impressed:
More important, as people began freaking out over the prospects of new border taxes with a giant trading partner, Sean Spicer walked back his comments somewhat:
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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