We’ve just come through an…. interesting… debate on health care, and the next subject up may be tax reform.
One key element of a plan being put forward is described as a “border adjustment tax.” It’s definitely a tax, but the only thing it adjusts is who will actually pay taxes, on what. And that’s why Global Automakers opposes it as outlined in the House Blueprint on Tax Reform.
While the precise details of the tax haven’t been spelled out, the basic concept is clear. It will be tax on goods that cross the border coming into the U.S. That may sound benign, until you consider that just about everything made in the U.S. uses parts and components that come from somewhere else.
Take the Toyota Camry, or Honda Accord, or Nissan Altima rolling off assembly lines in this country. The aluminum in the engine block might have started out as bauxite from Indonesia. The catalytic converter that scrubs emissions contains platinum or palladium from South Africa or Russia. The batteries in the hybrid versions of the vehicles contain lithium from Bolivia. The chips in the engine control module, might contain silicon from Asia.
One study, from Bloomberg News, showed that a single seat sensor in a U.S.-made car went from Asia, to Europe, to Michigan, and to Mexico and back before going into a car built by American workers in a U.S. plant. A border tax would just raise the prices of cars being built in America by Americans, and that’s not good for customers, workers, or business.
And there’s another problem: Several studies show that a border tax would add $2,000 to $2,500 to the average cost of a vehicle sold in the U.S. And let’s be honest: any increase in the price of a car or truck is going to be passed along to the consumer. Higher prices mean fewer sales. Fewer sales mean less manufacturing. Less manufacturing means fewer jobs.
That’s a burden that’s going to fall hardest on consumers in the middle of the market who rely on affordable transportation. Put those cars and trucks out of reach, and you’ve created a potentially serious problem.
Global Automakers is in favor of tax reform, but it should be a tax reform that gives people and companies more reasons to invest in American manufacturing, to create more American jobs making products all Americans can afford. The border tax fails all of those tests.