Potential tax reform will have hidden consequences: expert

The Border Adjustment Tax needs to be better understood before it is debated, because it will affect small companies across the country, according to Joshua Bac...

Legislative battling over the first massive tax reform in more than 30 years will have major consequences for small businesses across the country, warns Joshua Baca, senior vice president of DDC Public Affairs.

“There’s a reason tax reform hasn’t happened since the 1980’s– because it’s hard to do,” he told What’s Working in Washington.

“The tax code is probably longer than or as complex as trying to get through the Bible,” with many details now being debated, said Baca.

The most complicated issue is how imports and exports will be taxed, Baca said. The House of Representatives is considering a provision called the Border Adjustment Tax, which will increase and harden taxes on imports and exports.

“It’s really pitted industries in town here [in Washington, D.C.] against each other,” he said.

While traditional manufacturers like GE and Boeing support the plan, it’s heavily criticized by retailers in the automotive dealing and tech industries.

“We live in a global economy, and the reality is that global markets, global supply chains, really allow us to have iPhones, clothes, food,” Baca said.

Although this import and export tax might appear to be a good idea in the short term, driving businesses to work within the country, it would likely end up driving up the price of goods because the reason many companies export and import in the first place is to save money.

Baca quoted a recent study stating consumers could expect to spend more than $1700 more per year on even basic items if the plan goes through.

“There’s this whole notion about this being able to bring back more jobs to America. The reality is that I don’t know if there’s a lot of evidence that proves that,” Baca said. Many of the manufacturing jobs that left the U.S. are slowly becoming automated — and they’re not about to switch back to U.S. workers.

“I think we need tax reform that protects current jobs. Probably one that doesn’t include the Border Adjustment Tax,” he said. Baca said that he’d prefer a tax reform that spurs companies to keep prices competitive and create jobs, while also lowering taxes on businesses. Instead, Baca hopes to recoup lost revenue by reexamining wasteful government spending.

The current plan, in conjunction with cuts to other taxes, “allows them to take a trillion dollars in revenue, which would come from the Border Adjustment Tax, to offset those cuts,” Baca said.

However, the “trillion dollars that we’re talking about, of new revenue, that’s a hidden trillion-dollar tax increase on a lot of people,” Baca said.

Since many manufacturing jobs are being replaced by automation, “Congress should be looking at ways of promoting things like STEM education, and engineering at that mid level,” said Baca, to ensure that people retain employment and have the skill set that will adapt to the future.

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