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How Republicans' border taxes would hurt consumers

Rick Newman

A big lobbying battle has begun in Washington, D.C., over who will benefit the most from coming tax cuts—and who might have to bear the cost.

A plan being drafted by House Republicans—which President Donald Trump might support—would slash corporate tax rates, and offset some of that lost federal revenue with new tariffs on imports. American companies that export would face no such tax. The overall idea is to stimulate the economy with tax cuts and create more American jobs, without further enlarging the national debt.

In reality, however, import taxes are likely to raise the cost of many everyday products, from diapers to appliances to automobiles. “When you impose a border tax, it makes it very expensive to deliver the goods consumers expect at the prices consumers want to pay,” David French of the National Retail Federation tells Yahoo Finance in the video above. “This is basically just a giant tax increase on consumers.”

The NRF, backed by big retailers such as Wal-Mart (WMT), Target (TGT) and Best Buy (BBY) has rolled out a promotional campaign called Americans for Affordable Products that claims a “border adjustment tax” being considered by House Republicans would cost a typical family $1,700 per year in higher prices on hundreds of products. It might force smaller Main Street stores to close, as their costs rise and consumers balk at paying higher prices. People working in the retail industry could lose their jobs.

Lobbying groups routinely warn of doom, of course, if legislation or regulatory decisions go against their interests. And companies are usually more adept at adjusting to higher costs than they’re likely to admit publicly. Supporters of the border-adjustment tax also claim the cost would be minimal on consumers, because the US dollar would strengthen against other currencies, giving Americans more buying power. That’s unproven, however, and if it did happen, price hikes would come first, while a rise in the value of the dollar could take time.

Just before taking office, President Trump said the border-adjustment plan was “too complicated.” But a few days later, his spokesman, Sean Spicer, seemed to endorse at least part of the idea as a possible model for renegotiating trade terms with Mexico. The idea actually is somewhat complicated — especially when it comes to predicting changes in currency-exchange rates — and could be difficult to sell to voters suspicious of anything that sounds like a tax hike.

Another group of companies that export more than they import, including Boeing (BA), General Electric (GE) and Dow Chemical (DOW), like the border-adjustable tax because it favors exporters. They don’t necessarily support the tax on imports, but Republican budget hawks want to make up the difference somewhere, if big tax cuts cut into federal revenue. That’s where the import tax comes in. And just about every company likes Trump’s plan to cut corporate tax rates, provided they don’t get hit with other taxes that cause more harm than good.

The intensifying battle of titans illustrates the main reason tax reform is so difficult: It creates new classes of winners and losers, and everybody in Washington lobbies for the best possible outcome — for themselves. “Tax reform should be a win-win for everybody,” says French of the NRF. “Unfortunately, the plan on the table in the House has some big winners and millions of big losers.” Consumers, watch your wallets.

Confidential Newman tip line: rickjnewman@yahoo.com

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.