Why would Congress — including the west metro’s U.S. Rep. Erik Paulsen, R-Third District — even contemplate a 20 percent tax on Minnesota consumers? If such a tax seems ridiculous, that’s because it is. Yet it’s the central component of a tax reform proposal working its way through Congress. For the good of Minnesota families and businesses, it should never see the light of day.
This consumer tax — known in Washington as a “border adjustment tax” — would levy a 20 percent tax on every good imported into the United States. It’s estimated that it would cost taxpayers more than $1 trillion over the next decade to “pay for” a reduction in overall rates.
The reason many are calling this a consumer tax is because that’s who would ultimately pay it. Unable to afford a 20 percent tax on their own, businesses would more than likely pass much of the tax along to consumers in the form of higher prices. That includes goods we rely on every day. Gas, food, clothing — the price of all these items would increase substantially if a consumer tax is applied.
Gas price would be driven up
How much exactly? Start with gas. According to a December study from the Brattle Group, this consumer tax could drive up the price of gasoline by 55 cents per gallon, assuming global oil prices continue their recent upward climb. For the typical family of four with two cars, that amounts to more than a $720 tax hike every year.
And that’s just the start. Automobiles — many of which are either imported or have parts that are produced overseas — would jump in cost, too. According to a study from Baum & Associates, the price of an average Ford would increase by $282, Fiat Chryslers by nearly $1,700, and Toyotas by over $2,600. Although we don’t purchase new cars every day, not many people would volunteer to fork over that much more the next time they go car shopping to pay for a new tax.
All in all, a study by the National Retail Federation found this new consumer tax could cost the average family up to $1,700 in higher prices for every day goods in the first year alone.
These price increases would be difficult for many to swallow, but especially those in retirement or otherwise living on fixed incomes. Minnesota has more than a million residents over the age of 60. And with baby boomers retiring in increasing numbers, that number will only rise. Congress shouldn’t add to their costs of living by adding this new tax.
Businesses would be harmed
Of course, consumers wouldn’t be the only ones harmed by this tax; businesses would be hit, too. As they are forced to raise their prices to pay for this new tax, they would likely see a corresponding drop in sales. Fully 85 percent of net importers — those who would be hardest hit — also happen to be small businesses with fewer than 50 employees. That means it would be even harder for them to absorb all these added costs, which would have a direct impact on jobs and local economies all across the country.
A new study from my organization, Americans for Prosperity, details the devastating impact that a border adjustment tax would have on state economies. The study concludes that many importers would face massive new tax burdens under the policy. And Minnesota is especially threatened by the tax — over $34 billion of imports every year would be subject to the tax.
Despite these enormous harms, supporters of this tax argue the trillion-plus dollars it generates is necessary to “pay for” a reduction in overall rates. That’s simply not true. There are plenty of other options, including reducing federal spending by corresponding amounts. Washington has been financing wasteful spending for decades by raising taxes on hardworking families. It’s time for Washington to live within its means for once, just as Minnesota families have to.
Rep. Paulsen can help
Rep. Paulsen is in a unique position when it comes to this consumer tax. As a member of the House Ways and Means committee, he can help cut this proposal from the comprehensive tax reform plan —and he can help save Minnesota families and businesses from a harsh new tax burden.
As Congress debates tax reform in the coming months, Paulsen and others should keep their focus on lowering the total tax burden on family paychecks — not increasing it through a 20 percent consumer tax hike on everyday items. It’s what he and other Republicans in Congress have been promising for years. Now it’s time for them to honor their word.
Jason Flohrs is the state director for Americans For Prosperity-Minnesota.
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