House Speaker Paul Ryan (R-Wis.) did not have a replacement plan for the Affordable Care Act ready to go, and he sure doesn’t have a tax plan, at least not one that withstands budget scrutiny and has a prayer of getting passed. Both efforts reveal how unrealistic GOP campaign rhetoric and doctrine have gotten, how disconnected from reality they are both in substance and in politics.
No plan has been submitted formally to the Congressional Budget Office for scoring, but that does not prevent Ryan from informally testing certain aspects of his plan. If he had a magic formula to cut corporate tax rates and individual tax rates and keep the debt from ballooning, I think we would have seen it by now. In one incarnation, Ryan’s plan — according to the Tax Policy Center — lost trillions of dollars. That’s why Ryan is trying to peddle the border adjustment tax (BAT), but unless that generates several trillion dollars in revenue and can attract support, it will be of little help.
Right now the BAT is a big, fat target for policy mavens and Republican politicians who see price hikes for consumers and harm to many businesses that sell imports (or incorporate imported goods for sale). The latest is former senator Phil Gramm (R-Tex.), a tax-cutting icon in GOP circles. In an op-ed for the Wall Street Journal, he shreds the idea that the BAT won’t result in price increases for consumers because the value of the dollar will appreciate by just the right amount to offset the 20 percent BAT:
Even if we imagine that the value of the dollar could instantly rise by 25%, circumventing the adjustment process, the list of unintended consequences would still be immense. Much of the world’s public and private debt is denominated in dollars, and a rapid increase in the value of the dollar would cause massive financial upheavals and bankruptcies. A 25% increase in the dollar’s value would imperil American investments abroad—including hundreds of billions of dollars in private and state pension funds and university endowments. The domestic tourism industry, which does not get a tax subsidy on its sales to foreigners visiting the U.S., would be devastated.
Border adjustment will be challenged under international trade agreements. Proponents tell us that not taxing exports is only treating our income tax like a value-added tax, which normally is not imposed on exports. But countries with VATs also have income taxes. Could the U.S. persuade the World Trade Organization that exempting exports from income taxes is the equivalent of doing so for a VAT or sales tax? That’s doubtful, but if the answer is yes, other countries could do it as well—dissipating any U.S. advantage from subsidizing exports.
Gramm telling Republicans the tax plan is bad is like Fred Astaire telling you that you cannot dance. Don’t bother with a second opinion. Multiple GOP senators have already said they won’t back a BAT.
Listen to the president, and he’ll say a tax plan is coming in two or three weeks. Listen to Treasury Secretary Steven Mnuchin, and he will say he hopes to get tax reform “done” by the August recess. Listen to Ryan, and he’ll say everyone gets a tax cut; listen to Mnuchin, and he’ll say the White House is “primarily focused on a middle-income tax cut and a simplification for business.”
In other words, tax reform is stalled right now, a victim of over-promising, political reality and simple math. Perhaps Ryan should go back to the drawing board.