A view of the U.S.-Mexican border fence at Playas de Tijuana on on Friday in Mexico. (Justin Sullivan/Getty Images)

The GOP plan to reform corporate taxes — which the Trump administration last week claimed could make Mexico pay for President Trump's border wall — would effectively charge companies 20 percent on their imports. To consumers, it would feel a lot like a hefty new sales tax on foreign-made products. And, like any sales tax, it would put the most strain on the poorest households.

Families at the bottom of the income ladder could pay 5 to 8 percent of their incomes as a result of increased prices from the Republican proposal, according to new calculations from Katheryn Russ, an associate professor of economics at the University of California, Davis. Middle-class families would pay between $700 to $1,000 a year, or about 1.3 to 2 percent of their incomes.

These charts show how the new tax would affect a range of American households. The highest-earning 10 percent of households would pay the most, because they buy the most. But since poorer families spend a larger share of their paychecks toward purchasing food, clothing and other necessities — which are often imported — the import tax would make a larger impact on their budgets.


(Source: Katheryn Russ, "Distributional Implications of the Border Adjustment Tax for U.S. Households: Lower- and middle-income households may be hard hit”)

Russ’s calculations are based on her work as a senior economist on the Obama administration’s Council of Economic Advisers. She takes advantage of a detailed government survey, which asks thousands of households each year to keep track of what they buy. Still, these are only ballpark estimates. The most critical assumption involves how the 20 percent tax, which is levied on companies, would be passed on to consumers. Russ guesses that it would raise the price of imported goods by 10 percent, at least in the short term.

Some economists say that a border-adjustable tax wouldn’t affect customers much in the long run because it would cause the the dollar to rise, increasing our purchasing power enough to offset the impact of the tax. There’s some debate over whether the dollar would really strengthen that much; in any case, it would probably take a few years to fully adjust, and there would be pain for the poorest families in the meantime.

This is why retailers, who are big importers, have come out strongly against the tax. They say it will threaten their already thin profit margins and raise costs for consumers. The debate highlights one of the understated benefits of international trade: It lowers prices, particularly for the poorest Americans.

Research shows, furthermore, that when the prices of imports increase, the prices of domestic goods also increase because there is less competition. Russ's estimates represent a range: On the low end, only imports become more expensive; on the high end, the price of domestic goods also increases, by 5 percent.

All of this is another way of saying that you can’t get something for nothing. The GOP proposal to tax companies and their imports is estimated to raise over $1 trillion over the next decade. The Trump administration suggested last week that this money could fund the Mexican border wall, which might cost anywhere from $12 billion to $40 billion. But the money wouldn’t be coming from the Mexicans; it would come out of the pockets of American consumers.

There are good reasons to change the way we tax companies, and the House GOP plan will eliminate the temptation for companies to hide profits abroad. It also has a provision to subsidize corporate investment, which will likely spur growth.

But for House Republicans, another purpose of this corporate tax overhaul is to raise money for other tax cuts. They have a plan to revamp the income tax which heavily favors the rich. According to the nonpartisan Tax Policy Center, “three-quarters of the tax cuts would benefit the top 1 percent of taxpayers.” The highest-earning 20 percent of households would save about $10,000 a year, or roughly 4.6 percent of their income, the TPC estimates. The lowest-earning 20 percent of households would save only about $50, or 0.4 percent of their income.

In other words, the Republicans are proposing a regressive new tax on imports, in part, to help pay for further regressive changes in the income tax.