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Congress should abandon the 20% consumer tax proposal

REUTERS/Max Rossi
According to a December study from the Brattle Group, this consumer tax could drive up the price of gasoline by 55 cents per gallon.

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.

Jason Flohrs
Jason Flohrs

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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Comments (6)

  1. Submitted by Jan Arnold on 04/21/2017 - 08:45 pm.

    Since Americans for Prosperity is a Koch brothers organization, this tax would also adversely effect their profits so this article makes it sound like they are helping the average person. If this tax added to their profits, and still hurt the average person, they would be all for it.

  2. Submitted by Ilya Gutman on 04/21/2017 - 10:21 pm.

    Win-win

    “Gas, food, clothing — the price of all these items would increase substantially if a consumer tax is applied.” This statement is correct if, and only if, those items will still be imported. So if we use less Middle Eastern and Venezuelan oil, the prices will not go up. If we buy locally grown and made food, the prices will not go up. And if we buy American clothing, we will not pay more… OK, we probably will because it will be more expensive to make food and clothing in America than in China but that will give people jobs and they will be able to afford higher prices… They will also pay more taxes and consume less government resources. So I see this idea as a win-win…

  3. Submitted by Connie Sullivan on 04/22/2017 - 12:32 pm.

    I ask Ilya: Which comes first the tax or the jobs? The tax would be easy to set up and implement, whereas building new factories and whole industries that have disappeared into the robotic-and-international labor sinkpond would take many years to accomplish. If ever.

    And we need to consider that many, many of the federal programs that Trump’s administration (supported by Americans for Prosperity, it seems) are anything but inefficient and are supported heartily by the vast majority of our citizens. They can’t be cut without lots of socioeconomic bloodshed.

    Finally, too: the wealthy in our country do not need a tax cut. Not nationally or on a state-by-sate basis. They[re already raking it in, but most Americans don’t know the tax code and don’t know that.

    Every time I hear a Republican say that the wealthy need tax cuts I realize yet again that that’s all Trump and his Congressional allies will probably do: tax cuts for wealthy people and big business. On the backs of the folks st the bottom of the economic scale. At every turn.

    • Submitted by Ilya Gutman on 04/25/2017 - 07:39 am.

      Many American factories that closed have not been dismantled and can go back in operation relatively soon. And about tax cuts: The wealthy are already paying the lion’s share of taxes. I have heard a lot about everyone’s paying a fair share. Doesn’t it mean that everyone has to pay at least something?

  4. Submitted by chuck holtman on 04/23/2017 - 08:21 am.

    Our society’s pricing goal shouldn’t be “as cheap as possible,”

    It should be prices that reflect costs of production. The production of overseas goods is deeply subsidized, by externalizing poor working conditions on workers. The overseas transport of goods is deeply subsidized, principally by externalizing the social costs of fossil fuels. These facts support a substantial tax on imported goods in order to approach market pricing.

    The revenues from these taxes, of course, shouldn’t be distributed to the top 1%, they should be used to support ordinary folks domestically in a transition toward market pricing.

    The author’s policy prescription is wrong in all possible ways: that we should continue to press downward on the working conditions of foreign workers, continue to subsidize a fossil fuel economy, shovel even more social wealth into the pockets of the 1%, and cut domestic spending for ordinary folks to do it. But you write what you get paid to write, I suppose.

  5. Submitted by Pat Terry on 04/24/2017 - 08:23 pm.

    Ugh

    I more or less agree with the Koch brothers guy.

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