Could a Berkeley college professor who once advised the presidential campaign of 2004 Democratic presidential nominee John Kerry derail the best opportunity for conservative tax reform in three decades? As implausible as this may sound, it could well prove true if the Republican leadership in the U.S House of Representatives continue to insist on the inclusion of the so-called Border Adjustment Tax (BAT) in their tax reform legislation.
Alan Auerbach, the director of the Robert D. Burch Center for Tax Policy and Public Finance at the University of California, Berkeley, is the godfather of the BAT. This tax, which would apply to all U.S. imports, would effectively function as a massive national sales tax estimated to generate a whopping $1.2 trillion of revenue for government coffers over the next decade. The fact that House Republicans are turning to a liberal professor on one of America’s most left-wing campuses for inspiration on tax reform is a bizarre turn of events.
Not surprisingly, the BAT has run into a buzz saw of conservative opposition. Leading free-market, pro-growth advocacy organizations such as ours and Americans for Prosperity and Club for Growth, along with supply-side tax reformers such as Steve Forbes, Larry Kudlow, and Arthur Laffer, are urging Republicans to jettison the tax because it could squander this historic opportunity to reform the tax code.
The BAT could lead to disastrous political outcomes for the Republican majorities in Congress and the presidency of Donald Trump. Since President Trump’s election in November, optimism over the direction of the economy has risen in large part because of the expectation that tax reform would occur later this year. If Trump and congressional Republicans are to succeed in sparking stronger economic growth and driving up middle-class wages, fundamental tax reform that lowers business and individual tax rates must occur. While predicting market moves is a tough game, there is broad consensus that the rally since November has been pinned to the hopes for big and meaningful tax reform. Things could go in the opposite direction if tax reform falls apart over the BAT.
All of that is entirely avoidable. There is widespread agreement among Republicans on the big-ticket items of reducing the corporate tax rate from 35 to 20 percent and simplifying the code so families can keep more of their hard-earned money. Unfortunately, GOP Leadership is still holding out hope that a BAT will somehow generate revenue without causing harm to the economy. On this assumption, they’re wrong and their hopes for a revenue neutral mechanism is a costly mistake that will hit consumers and businesses who are relying on Congress to get tax reform right. While Republicans should be mindful of the rising debt and stick to their conservative principles in demanding that wasteful spending be cut and the size of government reduced, now is not the time for conservatives to implement liberal tax policy.
After eight years of weak growth under Barack Obama, the American people voted last November for growth, better jobs and bigger paychecks. Conservatives better well deliver on their promises to create a stronger economy with a rising standard of living for working Americans or they will suffer significant losses in the midterm elections. The BAT runs completely counter to the political goals of Republicans. It will drive up the cost of everyday items such as gas, groceries, clothing and shoes for working families by an average of $1,700 per year, and punish small businesses leading to significant job losses and further economic dislocation among working-class voters.
Rather than turning to a disruptive, punitive tax hatched by a Berkeley professor, who writes papers for the Center for American Progress and advises liberal Democrats, conservatives in Congress should return to the pro-growth philosophy of Ronald Reagan, the last president to deliver meaningful tax reform. Republicans need to be aggressive in ridding the tax code of special interest loopholes so tax rates can be lowered fairly for all businesses, small and large, and middle-income taxpayers who have borne the burden of the failed economic policies of Barack Obama.
The stakes for our economy and Republican governance in the nation’s capital couldn’t be higher. The importance of pro-growth tax reform is too important to be sacrificed because of the misguided BAT founded by someone whose economic views are widely contradictory to that of Republicans, who received a mandate on Election Day to enact conservative, not liberal policies.
Jeffrey Mazzella is President of the Center for Individual Freedom and David Williams is President of the Taxpayers Protection Alliance.