Major retail chains have been grumbling for months about a House Republican proposal to replace the corporate income tax with a new kind of broad consumption tax, known to wonks as the destination-based cash flow tax but increasingly called the border adjustment tax.
Now the National Retail Federation is striking back with a funny, satire-style ad against the “BAT tax.” When “ordinary taxes alone just won’t cut it, you need an everything tax like the BAT tax,” says the tagline. The premise, which is fundamentally correct, is that “you name it, BAT will tax it.” Left unmentioned, of course, are the offsets and the upside.
In technical terms, the way DBCFT works is that it imposes a broad consumption tax (what’s called a value-added tax in Europe, or an “everything tax” in the ad) but then largely offsets it with a wage subsidy. The upshot is a broad tax on consumption that is financed out of capital income. That’s considerably less politically toxic than the ad makes it out to be — though even correctly understood, imposing what amounts to a tax on middle-class retirees plus generic rich people sounds like a difficult sell to me.
All that, at any rate, is in theory. In theory, the new tax imposed on importing products from abroad will be offset by an increase in the value of the dollar, leaving the final sales price to American consumers the same. Textbook economic models say this will happen, but private industry analysts are skeptical, noting that there are a lot of political factors in play in determining exchange rates. If the offset doesn’t fully happen, then everyone really will end up paying more for things in stores.
But what the ad really goes to show is how odd it is for the House GOP to be pushing such a radical tax overhaul without any apparent Democratic support. Any big tax reform is subject to both interest group politics (which is why the National Retail Federation is running the ad) and to cheap shots (which is the content of the ad).
That’s why the traditional thinking has been that to get it done, you’d have to get it done in a bipartisan way. Which would mean bundling the reform with some larger project that Democrats might be interested in, rather than yoking it to Affordable Care Act repeal and a larger effort to lower taxes on high-income households.
