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TOP FIVE MYTHS ABOUT CONGRESS’
BORDER ADJUSTMENT TAX
Claims Are Widely Rebutted By Experts &
Range From Misleading To Completely False
MYTH 1: Currency Changes Will Diminish Negative Impact
FACT:

Border Adjustment Tax Proponents Claim That Dollar Will Adjust:
Chairman BRADY:
“We Also Know The Economy Adjusts—Strength In The U.S. Economy, Strength
In Our Exports, The Dollar Will Appreciate. That’s Going To Address The Balance
On The Imports.”
(Michelle Fox, “Reform, Including A Border Adjustment Tax, Will Happen This Year, Chief GOP Tax Writer Says,” CNBC, 2/3/17)
FACT:

Conservatives, Analysts & Economists All Agree That
Currency Adjustment Is No Certainty:
U.S. Commerce Secretary WILBUR ROSS:
“I’m A Little Skeptical About The Theory That There’s Somehow A Totally Free
Lunch And That The Markets Will Exactly Absorb Everything.”
ROSS: “So the theory of border adjustable is the currencies would readjust and therefore it would
be a zero-sum game. I’m a little skeptical about the theory that there’s somehow a totally free
lunch and that the markets will exactly absorb everything.”
(“U.S. Commerce Secretary Wilbur Ross Speaks With CNBC’s Andrew Ross Sorkin On ‘Squawk Box’ Today,” CNBC, 3/3/17)
Senator TOM COTTON:
“This Is A Theory Wrapped In Speculation Inside A Guess.”
“Now, its defenders say this tax won’t increase the cost of imports. What will happen, they say,
is our exports will be cheaper because we’ll no longer be taxing them. So, then more people
overseas will buy more exports from us, which means those people will need more dollars to
buy them, which means the dollar itself will increase in value. And that means imports won’t be
more expensive, because you’ll be able to buy them with a stronger dollar. So, even with the new
tax added on, you’ll still come out right where you were before. This logic reminds me of Orwell
again: some ideas are so stupid only an intellectual could believe them. This is a theory wrapped
in speculation inside a guess. Nobody knows for sure what will happen—no one can know for sure
because currency markets fluctuate daily based on millions of decisions and events. Just because
an economist slaps an equation on a blackboard doesn’t make it real.”
(Floor Remarks, Senator Tom Cotton, Washington, D.C., 2/16/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
U.S. Federal Reserve Chair JANET YELLEN:
“Great Uncertainty” Over BAT Effect On Dollar.
Janet Yellen told lawmakers today ‘there’s great uncertainty’ over how the value of the dollar
would be affected by the border adjustability provision of the House Republican tax reform plan. ‘I
know that there have been discussions and academic work in connection with the border tax that
suggests that an appreciation of the dollar could fully offset … a tax change that raised the cost
of imports and provided a comparable export subsidy. And in principle that could provide a full
offset,’ Yellen said during her semi-regular appearance before Congress. But she cautioned: ‘The
problem is there’s great uncertainty with how, in reality, markets would respond to these changes.
A strong set of assumptions is needed to believe that markets would fully offset those changes.
It’s very difficult to know just what would happen. There is more than trade that affects a country’s
exchange rates. Market participants’ expectations matter.’”
(Colin Wilhelm, “Yellen Sees ‘Great Uncertainty’ About Dollar’s Response To Border Adjustability,” Politico Pro, 2/15/17)
New York Federal Reserve President BILL DUDLEY:
“There Could Be A Lot Of Unintended Consequences.”
“Another prominent critic of a ‘border adjustment tax’ emerged Tuesday: the president of the
New York Federal Reserve … The New York Fed president [Bill Dudley] agreed that such taxes
would mark a ‘pretty dramatic change.’ ‘I think that it will lead to a lot of changes in the value of
the dollar, the price of imported goods in the U.S., and I’m not sure that would all happen very
smoothly,’ Dudley said. ‘I also think there could be a lot of unintended consequences.’”
(Michelle Caruso-Cabrera, “NY Fed’s Dudley Sees ‘A Lot Of Unintended Consequences’ From Border-Tax Plan,” CNBC, 1/17/17)
Citi Research:
“We Believe It Is Not Possible To Have Any Confidence About Even The
Direction Of The Response Of The Dollar To A BTA In The U.S. – Let Alone
About The Magnitude.”
“Given the lack of robust empirical evidence, we believe it is not possible to have any confidence
about even the direction of the response of the dollar to a BTA in the U.S. – let alone about the
magnitude … Many of these factors are unobservable and they are likely to change frequently
and significantly. So even if there were certainty that a possible future U.S. corporate profit tax
BTA would be completely neutral, and even if a currency investor were fully confident about the
sign and magnitude of the response of the dollar exchange rate, should a BTA occur, it would be
very difficult to determine how much of the BTA neutrality driven exchange rate appreciation or
depreciation has already been priced into spot, forward and options markets for the dollar and
other currencies … Not only do we not know the magnitude of the exchange rate effect of a BTA,
we don’t even know the sign or direction.”
(Willem Buiter, “Exchange Rate Implications Of Border Tax Adjustment Neutrality,” Citi Research, 2/22/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
MYTH 2: Current Tax System Is Skewed Against U.S. Manufactuers
FACT:

Border Adjustment Tax Supporters Claim It Will Eliminate “Made In America” Tax:
Speaker RYAN:
“Our Plan Will Vault The U.S. Tax Code To Among The Most Competitive
In The World, Ensure A Level Playing Field For American Businesses, And
Encourage Companies To Bring Jobs Back From Overseas And Manufacture
Products Here At Home.”
(Speaker Paul Ryan, 2/21/17)
Chairman BRADY:
“So, Border Adjustability Is A Very Key Principle. Because It Says For The First
Time, All Products Will Be Taxed Equally In America, We Take The ‘Made In
America’ Tax Off Our Products. And So Going Forward There Won’t Be Huge
Tax Breaks For Foreign Products Over ‘Made In America’ And That Is Really
Critical.”
(Fox News, 5/3/17)
FACT:

Border Adjustment Tax Proponents Employ False Rhetoric,
While Having Tax Obfuscation Record:
“MADE IN AMERICA” TAX CLAIMS NOT TRUE:
Infographic: The “Made In America Tax” Is Fake News
(Americans for Affordable Products, Accessed 5/21/17)
AMERICAN MADE COALITION MEMBERS ENJOY UNEVEN TAX ADVANTAGES:
From 2008 To 2015, Not A Single American Made Coalition Member
Examined In An Institute On Taxation And Economic Policy (ITEP) Report
Paid The 35 Percent Rate With Some Paying Next To Nothing.
(Matthew Gardner, Robert McIntyre & Richard Phillips, “The 35 Percent Corporate Tax Myth,” Institute On Taxation
And Economic Policy, March 2017)
“Although The Top Corporate Rate Is 35 Percent,
Hardly Any Company Actually Pays That.”
“Complaining that the United States has one of the world’s highest corporate tax levels, President
Trump and congressional Republicans have repeatedly vowed to shrink it. Yet if the level is so
high, why have so many companies’ income tax bills added up to zero? That’s what a new analysis
of 258 profitable Fortune 500 companies that earned more than $3.8 trillion in profits showed.
Although the top corporate rate is 35 percent, hardly any company actually pays that.”
(Patricia Cohen, “Profitable Companies, No Taxes: Here’s How They Did It’,” The New York Times, 3/9/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
100 Companies “Paid No Taxes In At Least One Year Between 2008 And 2015.”
“The report, by the Institute on Taxation and Economic Policy, a left-leaning research group
in Washington, found that 100 of them—nearly 40 percent—paid no taxes in at least one year
between 2008 and 2015. Eighteen, including General Electric, International Paper, Priceline.
com and PG&E, incurred a total federal income tax bill of less than zero over the entire eight-year
period—meaning they received rebates. The institute used the companies’ own regulatory filings
to compute their tax rates.”
(Patricia Cohen, “Profitable Companies, No Taxes: Here’s How They Did It’,” The New York Times, 3/9/17)
Thirty-Five Percent Corporate Tax Rate Is An “Artificially Inflated Number”
Due To “A Variety Of Loopholes And Tax-Dodging Methods.”
“Companies take advantage of an array of tax loopholes and aggressive strategies that enable
them to legally avoid paying what they owe. Individual industries have successfully lobbied for
specific tax breaks that function as subsidies … Tax reformers have long argued that the nominal
35 percent federal rate on corporate profits more often than not functions like a strike-through
price—an artificially inflated number that sounds high but rarely applies. Thanks to a variety of
loopholes and tax-dodging methods, those 258 corporations paid an average rate of 21.2 percent.”
(Patricia Cohen, “Profitable Companies, No Taxes: Here’s How They Did It’,” The New York Times, 3/9/17)
MYTH 3: Most Other Countries Already Border Adjust
FACT:

Border Adjustment Tax Advocates Claim Other Countries Have In Place Same Policy:
Speaker RYAN:
“The Border Adjustment Is Basically Getting Us In Sync With The Rest Of The
World Because The Rest Of The World Already Border Adjusts Their Taxes.”
(Naomi Jagoda, “House GOP Not Sold On Ryan’s Tax Reform Plan,” The Hill, 5/16/17)
Speaker RYAN:
“The Border Adjustment Is Basically Getting Us In Sync With The Rest Of The
World Because The Rest Of The World Already Border Adjusts Their Taxes.”
(Neil W. McCabe, “Exclusive–Ways and Means Chair Brady: Border Adjustment Tax How Congress Turns Trump
Rhetoric into Reality,” Breitbart, 2/27/17)
Former bush national economic Council Director LAWRENCE LINDSEY:
“Right Now, Every Other Country In The World Bases A Major Portion Of Its Tax
System On This Concept; Sometimes It’s Known As ‘Destination-Based’ Taxation.”
(Lawrence B. Lindsey, “The Right Cure,” The Weekly Standard, 5/20/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
FACT:

Border Adjustment Tax Supporter Rhetoric Confronts
“There Is No Tax Like This Anywhere In The World”:
WORLD-WIDE BORDER ADJUSTMENT TAX CLAIMS WRONG:
Infographic: The “Made In America Tax” Is Fake News
(Americans for Affordable Products, Accessed 5/21/17)
EXPERTS AGREE THAT NO ONE ELSE BORDER ADJUSTS CORPORATE INCOME TAX:
MICHAEL GRAETZ, Alumni Professor Of Tax Law, Columbia Law School:
“There is no tax like this anywhere in the world.”
(Howard Gleckman, “Patience, Donald: It May Take Years For Congress To Solve These Five Issues
With Tax Reform Plan,” Forbes, 2/7/17)
The Wall Street Journal:
“No Country Has Done Precisely What The House GOP Is Proposing.”
“Border adjustment is essential in value-added tax systems around the world, but no country
has done precisely what the House GOP is proposing.”
(Richard Rubin, “GOP Plan To Overhaul Tax Code Gets Held Up At The Border,” The Wall Street Journal, 2/7/17)
BORDER ADJUSTMENT TAX & VALUE-ADDED TAX SIMILARITY CLAIMS: :
“Mostly False.”
“During the announcement, Brady compared the United States tax code to other countries’ and
made one notable claim about United States exporters. ‘No longer will we be the only major country
that taxes its own exports,’ Brady said. So what was Brady referring to? A spokesperson for Brady
referred us to the GOP’s ‘Our Better Way’ tax plan. So we dug in. The plan points to one aspect of
the current tax code: the use of a federal corporate income tax rather than a federal consumption
tax. Let’s explain. Many countries beside the United States use a ‘value-added’ consumption
tax in addition to an income tax. The VAT is complicated to explain, but in essence applies taxes
throughout the production chain and not just at the end like a normal sales tax. One aspect of the
VAT is ‘border adjustability,’ which means the country removes the ‘value-added’ tax when it’s
applied to exports, said Richard Schmalbeck, a professor of law at Duke University.”
(Neelesh Moorthy, “Texas Republican Kevin Brady Errs In Comparison Of U.S. Tax Code,” PolitiFact Texas, 6/28/16)
“Among other measures designed to promote international competitiveness, the GOP plan wants
to transform the United States’ current corporate income tax system, which currently lacks border
adjustments, into what is called a ‘destination, cash-flow based’ income tax. This new system would
tax net cash flow, deduct exported sales and impose the income tax on imports. Thus, the new
tax protocol provides for income taxes on the ‘border adjustments’ other countries use for VAT
consumption taxes … Even if you believe Brady broadly has something of a point comparing the U.S.
system to VAT countries, he’s wrong on the specifics … Brady said that the United States is the only
country that taxes its own exports, a problem the GOP tax plan intends to fix. Other countries do
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
exempt exports from their consumption taxes using ‘border-adjustments.’ However, experts told us
that Brady’s statement ignores the income taxes of other countries, which do end up taxing export
income, at least in part. For that reason, we rate this claim Mostly False.”
(Neelesh Moorthy, “Texas Republican Kevin Brady Errs In Comparison Of U.S. Tax Code,” PolitiFact Texas, 6/28/16)
“Border Adjustment Tax Supporters “Conflating Income
Taxes With Consumption Taxes.”
“This time, the [American Made Coalition] complains that I don’t buy their misleading claim that we
need the BAT because other countries’ tax codes (rather than our own) create a disadvantage for
our exporting companies. To make the case, they enroll Larry Lindsey, the former director of the
National Economic Council under President George W. Bush. They quote him saying: ‘Germany taxes
based on where a good is going to be sold—its destination—instead of where it was produced. We
currently tax based on where goods are produced and not on where they are sold. So, a Mercedes
leaving Hamburg actually gets a rebate from the German government on its taxes (a so-called valueadded tax) because it is destined for America, not Germany. And because we tax by where goods are
produced, the Mercedes avoids taxation here as well. Alternatively, a Cadillac destined for Germany
pays U.S. taxes because it was manufactured here and is then taxed again in Germany because
that’s where it’s sold. So the Cadillac is taxed at two points in the chain, and the Mercedes is not
taxed at all. Seem fair to you? Disappointingly, like many others before him, Lindsey is conflating
income taxes with consumption taxes and switching from one to the other without telling you that
he is doing so … [A] Cadillac destined for Germany pays U.S. corporate income taxes because it
was manufactured here and is then taxed again in Germany under its VAT because that’s where it’s
sold. A Cadillac sold in the United States, on the other hand, is subject to only the corporate income
tax. So the Cadillac destined for Germany is taxed at two points in the chain (U.S. corporate income
tax and German VAT), and the Mercedes sold in Germany (which competes with the Cadillac sold
in Germany) is also taxed at two points in the chain (German corporate income tax and German
VAT). Likewise, the Mercedes destined for the United States is subject to only one tax (the German
corporate income tax), while the directly competitive Cadillac sold in the United States is also subject
to one tax (the U.S. corporate income tax). Seem fair to you? (Yes.).”
(Veronique de Rugy, “Correcting the Record on Tax Reform, Part II,” National Review, 3/6/17)
“Now, I agree that our companies are at a serious disadvantage – but it’s not because of other
countries’ tax codes. It is because the U.S. corporate tax rate imposed by our government on a
Cadillac is higher than the German corporate income tax imposed by the German government
on the Mercedes. In addition, income of U.S. multinational companies earned abroad are still
subjected to the U.S. corporate tax unless the company keeps the income overseas through one of
its subsidiaries. The good news is that Congress has the power to remove these disadvantages by
lowering the rate and moving to a territorial tax system like most of our competitors have in the past
without resorting to a BAT.”
(Veronique de Rugy, “Correcting the Record on Tax Reform, Part II,” National Review, 3/6/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
MYTH 4: Border Adjustment Tax Ends Job Offshoring &
Helps American Manufacturing
FACT:

Border Adjustment Tax Proponents Argue It Will Help Move Jobs Back To America:
Speaker RYAN:
“[The Border Adjustment Tax] Is Good Manufacturing Policy.”
(Naomi Jagoda, “Ryan Uses Reporters’ Recorders To Explain Border Tax Proposal,” The Hill, 2/16/17)
Chairman BRADY:
“[The Border Adjustment Tax] Eliminates Any Tax Incentive To Move
Any Jobs Or Headquarters Overseas.”
(Robert King, “Ways And Means Chairman Kevin Brady: Tax Reform Bill To Move This Spring,” Washington Examiner, 3/26/17)
FACT:

Border Adjustment Tax Advocates Offshore Jobs & Policy Hurts Manufacturers:
EXPERTS AGREE THAT NO ONE ELSE BORDER ADJUSTS CORPORATE INCOME TAX:
American Made Coalition Members Offshore Jobs.
“President Donald Trump, who has vowed to stop U.S. manufacturing from disappearing overseas,
will seek job-creation advice on Thursday from at least five companies that are laying off thousands
of workers as they shift production abroad. Caterpillar Inc (CAT.N), United Technologies Corp
(UTX.N), Dana Inc (DAN.N), 3M Co (MMM.N) and General Electric Co (GE.N), are offshoring work to
Mexico, China, India and other countries, according to a Reuters review of U.S. Labor Department
records … About 2,300 U.S. workers at these five companies stand to lose their jobs within the
next two years as a result of offshoring, according to the Labor Department’s Trade Adjustment
Assistance Program, which provides retraining benefits to workers displaced by global trade. Reuters
obtained the information through a Freedom of Information Act request.”
(Andy Sullivan, “Trump To Seek Jobs Advice From Firms That Offshore U.S. Work,” Reuters, 2/23/17)
BORDER ADJUSTMENT TAX NEGATIVELY IMPACTS AMERICAN MANUFACTURERS:
Institute For Policy Innovation President Tom Giovanetti:
Proponents Of The Border Adjustment Tax Have “Underestimated”
The “Counterproductive Impact.”
“Retailers are understandably unhappy about the prospects of higher costs on the goods they resell
to consumers, because their customers will bear much of the cost. And because so much of our
consumer economy is based on goods manufactured abroad, if the Trump administration is going to
follow through on its trade and domestic manufacturing agenda, prices are going nowhere but up.
We should not forget that border adjustment will also raise the costs of manufacturing in the U.S. in
accordance with the significant degree to which U.S. manufacturers rely upon imported parts and
raw materials, and we think proponents have underestimated this counterproductive impact.”
(Tom Giovanetti, “Let’s Be Honest About Border Adjusted Taxes,” The Institute For Policy Innovation, 3/9/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
Mercatus Center Senior Research Fellow Daniel Griswold:
Combined With “Likely” Retaliatory Tariffs And A Stronger Dollar,
“U.S. Manufacturing Exports Will Suffer.”
“In fact, the BAT would likely provoke a challenge in the World Trade Organization, and
ultimately retaliatory tariffs against our exports. When combined with a stronger dollar, U.S.
manufacturing exports will suffer. We’ll lose good-paying jobs making jet engines and computers
for export in exchange for lower-paying jobs making sneakers, t-shirts, and bouncy balls. That is
not a formula for national greatness.”
(Daniel Griswold, “Why I’m Wary Of The GOP’s ‘Border Adjustable Tax’ Plan,” Mad About Trade, 1/10/17)
New York’s Federal Reserve Bank :
Border Adjustment Tax “Likely To Depress Rather Than Stimulate Exports.”
“How will U.S. exporters fare? An unintended consequence of the proposed border tax is that it is
likely to depress rather than stimulate exports. As export prices are also invoiced in U.S. dollars, the
tax exemption on export revenue will mostly boost exporters’ profit margins rather than increase
their export sales. And with the accompanying partial appreciation in the U.S. dollar, the prices of
U.S. exports in foreign currencies will rise. This will provide incentives for our trading partners to
switch their demand away from U.S.-produced goods, resulting in lower U.S. export sales.”
(Mary Amiti, Oleg Itskhoki & Jozef Konings, “Why The Proposed Border Tax Adjustment Is Unlikely To Promote U.S.
Exports,” Federal Reserve Bank Of New York, Liberty Street Economics, 2/24/17)
MYTH 5: Border Adjustment Tax Will Not Substantially Hurt Consumers
FACT:

Border Adjustment Tax Supporters Claim Policy Will
Help American Families & Consumers:
Speaker Ryan’s Press Office:
“[The Tax Reform Blueprint And Border Adjustment Tax] Is About Making Sure You
Can Find Good-Paying Jobs And Keep More Of Your Hard-Earned Paychecks.”
(Press Release, “See How The GOP Tax Plan Will Grow Jobs In Your State,” Speaker Paul Ryan, 4/12/17)
FACT:

Research Shows That Border Adjustment Tax Will Raise The Cost Of Goods:
National Retail Federation:
BAT “Could Cost American Families Up To $1,700 In The First Year.”
“The National Retail Federation recently published an analysis concluding that the $1 trillion ‘borderadjustment’ tax on imports proposed by House Speaker Paul Ryan (R-Wis.) and Ways and Means
Committee Chairman Kevin Brady (R-Texas) could cost American families up to $1,700 in the first year.
Our cost data was drawn from empirical information provided by our members, an Ernst & Young
economic analysis of border adjustment and available government data on typical family purchases.”
(David French, “Knock, Knock: Economic Ivory Tower, Meet Retail Reality,” The Hill, 3/8/17)
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TOP FIVE MYTHS ABOUT CONGRESS’ BORDER ADJUSTMENT TAX
The Brattle Group:
Implementation Of BAT Could Raise Retail Gas Prices Significantly.
“The country’s continued reliance on imports, as well as the offsetting increase in exports
of crude oil and petroleum products, creates a situation where the passage of the border
adjustment tax will lead to significant increases in the prices paid for petroleum products and
the prices received by producers of domestic crude oil … The impact on consumer spending
and U.S. GDP would be much larger at global crude oil prices higher than $50 per barrel. For
instance, were global crude prices to rise to $90, as forecasted by the U.S. Energy Information
Administration (‘EIA’), the border adjustment tax would increase retail gasoline prices by $0.55
above the prices that would exist without the tax. Such an increase could have very serious
economic consequences.”
(Philip K. Verleger, Jr., Kevin Neels, Pallavi Seth & Fabricio Nunez, “Border Adjustment Import Taxation Impact On The U.S.
Crude Oil And Petroleum Product Markets,” The Brattle Group, 12/16/16)
“[R]esulting price increases would have noticeable impacts on the U.S. economy. Higher gasoline
prices would require consumers to reduce expenditures on other goods and services … We find
that, if the border adjustment tax was imposed solely on the petroleum industry, the adoption of
this tax could boost consumer expenditures on gasoline and other motor fuels by $30-35 billion
per year if price elasticity is low and crude oil prices are between $50 and $60 per barrel, resulting
in a corresponding reduction of consumption of other goods and services by the same amount …
With the border adjustment tax, prices of many consumer goods would increase to some degree.”
(Philip K. Verleger, Jr., Kevin Neels, Pallavi Seth & Fabricio Nunez, “Border Adjustment Import Taxation Impact On The U.S.
Crude Oil And Petroleum Product Markets,” The Brattle Group, 12/16/16)
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