Former Republican Sen. Phil Gramm harshly criticized the House Republican plan to border-adjust taxes in a Wall Street Journal op-ed published Thursday, providing critics of the proposal another highly influential ally.
Gramm, a Texan and former chairman of the Banking Committee, wrote that the House GOP proposals have “little basis in economic logic, hinder economic efficiency, violate the letter and the spirit of numerous trade agreements, subject the economy to excruciatingly painful adjustments, [and] expose America and the world to unacceptable economic risks.”
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Rather than raise revenues through the border adjustment, also referred to as an import tax, Gramm wrote that Republicans should accept a higher corporate tax rate than the 20 percent rate they are currently targeting.
The strategy, he explained, should be like the one pursued in 1986, when Congress eliminated credits, deductions, and loopholes, and used the new revenues to lower tax rates.
“Even if the resulting corporate tax rate is substantially above 20%, such a reform would help the economy, and federal revenues, grow,” he concluded.
Gramm, a former economics professor, remains influential with many congressional Republicans.
House Republicans have proposed taxing imports as part of a broader corporate rate-cutting reform that would tax goods based on where they are sold. Under the plan, companies would no longer be allowed to deduct the cost of imported goods and services, but would no longer pay any taxes on revenues from exports.
In today’s system, U.S. companies are taxed on all profits, whether they are earned in the U.S. or abroad. Republicans say that the change would encourage more manufacturing within the U.S., and discourage companies from moving production overseas.
Republicans have argued that the dollar would appreciate in response to the border adjustment, offsetting its impact on importers.
Gramm, however, questioned that logic in his op-ed, and warned that a rising dollar would hurt U.S. investments in foreign assets.
