Monday, February 27, 2017

The "Border Adjustment Tax" Is A Bad Deal For South Dakotans

     It's arcane, complicated, wonkish and nearly indecipherable, but in the end it looks to me like the "border adjustment tax" that's being floated in D.C. these days is a bad deal for South
A Tax On Guacamole?
What Next?
Dakotans.  
It fails this state on two fronts and I hope our congressional delegation will put our interests ahead of their party's when they mull this proposal and make a decision on it.  The big-picture economic considerations are certainly a factor, but in both the long- and short-runs, South Dakotans get hurt by this idea.  

     The first impact of this tax will be on us consumers.  The plan is to slap an immediate 20% tax on all foreign imports. That to me is crazy on the face of it because of who will take the hit. Attention Wal-Mart shoppers, you'll be feeling it in your wallet right away--and that goes for retail consumers across the board. It's little wonder that the National Retail Federation is crying "foul"  over this proposal, claiming that it could cost the typical American family as much as $1700 hundred a year.  Analyses that I've read consider that a stretch, but nobody disputes that consumers will be shelling out more money for the products they buy on a day-to-day basis.  Every shopper in town knows that their households are loaded with imported food and other retail goods.  For a state like South Dakota, where median incomes are slightly below the national average while the cost of living is slightly above it, consumers will feel--if not entirely understand--the pain induced by this gratuitous tax on them.
     Meantime, what about the long term effect of this tax on our state's ag industry?  First off,
Who Pays?
Duh.
(graphic from UC Davis)
the BAT, according to The Tax Foundation"will have an impact on the U.S. Dollar, resulting in an increase in its value." The American Farm Bureau--already uneasy about the Trump administration's immigration reform plan affecting the currently strained agricultural labor supply--said last week that it is "still studying" the adjustment tax and "wants to make sure it doesn't roll over into a trade situation and cause a trade war that would not be good for anyone in agriculture."  I'm quite a bit less circumspect because an appreciating dollar has never been good for exporters in this country, ag producers or otherwise.  Considering that it looks like the immediate reason for this proposal is to make up for revenues to be lost by the Trump administration's plan for cutting corporate income taxes, I'd say it's a bad deal.  Long run projections by economists believing that all will fall into place somewhere down the road don't convince me that the immediate dislocations are worth the risk of imposing this tax, which takes aim at the little guys first.  

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