Larry Kudlow: White House Favors GOP Proposal to Tax Imports

Initially, to prod U.S. OEMs such as Ford, Dow Chemical and Dell to reshore their overseas manufacturing operations, Trump was eyeing an across-the-board tax on imports as high as 10%, according to CNN.

Trump and your taxes: Watch Jim Cramer lead a roundtable discussion on how investors and retirement savers should position their portfolio.

A parody commercial mocking House Republicans' proposed tax on imports will run this weekend during "Saturday Night Live". There are actually three reasons that a border adjustment as part of tax reform would be an improvement over current law.

Those straightforward reforms are well-known to those who have worked on this for decades: Lower the corporate tax rate, which is now the highest of all the OECD countries, and move to a territorial tax system.

Trump put forth and revised a tax proposal on the campaign trail, but has been relatively quiet about the specifics since his election and inauguration. In theory, the plan would also discourage offshoring and incentivize reshoring. The "Better Way" blueprint put forth by the House Ways and Means Committee is the most complete GOP proposal out there. "The BAT does just the opposite, penalizing Americans by adding a tax on clothing, food, gas and other necessities while threatening the very industry that 42 million hardworking men and women rely upon for the livelihoods", David French, NRF svp for government relations, said in a statement. He noted that in addition to including border adjustments, the House GOP's tax reform blueprint moves to a "territorial" tax system that does not tax US companies' foreign earnings. "We are pushing full steam ahead with bold solutions, once-in-a-generation solutions to get America moving again", the Texas Republican told the audience.

Business Taxes. Reducing the tax burden for businesses is an across-the-board priority for the GOP. Not to worry, Feldstein argues, "what would happen instead is a 25% increase in the dollar relative to other currencies, enough to offset the tax on imports and the subsidy on exports". Too much cash breaking your back?

So why might a 10% tax on imports be OK, but not a 20% tax? Trump is scheduled to make a major speech to Congress on Tuesday.

Eric Toder, co-director of the Urban-Brookings Tax Policy Center, said that exporters think "they're going to get a big tax cut" from the GOP plan.

The border adjustment tax does neither and is a step in the wrong direction.

The idea of a border tax has both fierce critics and staunch supporters on Capitol Hill and in corporate America. For example, Boeing exports aircraft, GE sells engines overseas, and Caterpillar sells construction equipment in other countries.

Lawmakers who oppose the border adjustment tax do so because they feel that the border adjustment tax (BAT) will cause higher prices for retailers and end consumers.

"Conservative activists" who met with "White House representatives" were told the White House does "favor the border adjustment", Kudlow said on CNBC.

The president has given mixed signals about his take on the measure.

"Anytime I hear, 'border adjustment, ' I don't love it", Trump told The Wall Street Journal in an interview published on January 16.

The White House has been noncommittal on the border tax proposal, and Commerce Secretary Wilbur Ross was quick to say the president's comments were not meant as an endorsement.

"The Border Adjustment Tax is not simple or fair". Importers would be no worse off because the dollar's greater buying power would just balance their new tax disadvantage, so, if you believe the economists' models, your imported avocados (or anything else) wouldn't cost any more at all. "Revenue-raisers are hard to do", he said. "We still have a lot of education to do".

  • Zachary Reyes