Protectionism in the Guise of Tax Reform

http://www.nytimes.com/2017/03/13/opinion/protectionism-in-the-guise-of-tax-reform.html

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To the Editor:

Re “Tax Imports, Not Exports” (Op-Ed, March 6):

Alan Auerbach and Michael Deveraux don’t acknowledge that as proposed, the House Republican tax reform they support is protectionist. It would impose a 20 percent tax on the full value of imports, but for domestic production would impose that tax on corporate profits only after allowing deduction of labor and input costs.

The United States would not be happy with a similar tax if it were adopted by, say, Canada or the euro area, raising a new 20 percent tax barrier to United States exports.

The proper reformulation is to provide a standard deduction of, say, 70 percent of import value from the taxable base, representing labor and input costs. But then the tax would raise far less than the $1 trillion over 10 years that its supporters are counting on to fund tax cuts.

WILLIAM R. CLINE, WASHINGTON

The writer is a senior fellow, Peterson Institute for International Economics.

To the Editor:

Yes, the American tax system is broken, but Alan Auerbach and Michael Deveraux’s border adjusted tax would further break it. Worse yet, it could have drastic effects on the poorest people in the world.

If the dollar appreciated in response to the new tax, then debt held in dollars by developing countries could catapult them into a debt crisis.

Poor countries already struggling to provide basic health care and education would face a dramatically increased debt burden overnight and could be forced to choose between repaying creditors and fighting diseases, building schools and providing clean water.

Sooner or later, Americans would feel the consequences of this choice. Such policy shifts would also deepen incentives for companies to aggressively dodge taxes owed to poor countries.

Rather than a mutually destructive race to the bottom that will leave all countries worse off, our leaders should seize the opportunity to collaborate.

RAYMOND C. OFFENHEISER, BOSTON

The writer is president of Oxfam America.