Cotton Speaks on the Senate Floor in Opposition to the Border Adjustment Tax
Our tax code is a mess—no one voted for it, no one wants it, no one likes it. I’ve said many times we should eliminate all the special-interest loopholes in the code and use that money to cut taxes for everybody—including American businesses. We want to encourage them to invest, grow, and create more jobs right here in America. I know my colleagues are working on a tax bill, and I want to stress how much I support their efforts. I’ll of course withhold judgments on any proposal until I see the final text. But I also want to say, today, I have reservations about one idea that’s being considered.
It’s called a border-adjustment tax, which sounds like something from Orwell’s newspeak. Here’s how it would work. We’d cut taxes for corporations. And to make up for the lost revenue, we’d tax businesses whenever they bought something from another country. So, for instance, every time Ford bought an auto part from Canada, it would pay a 20 percent tax. Or every time your local grocery store brought in bananas from Guatemala, it would pay a 20 percent tax. And whatever money businesses made from selling their products in other countries would be exempt. In other words, what all of this would amount to is a 20 percent tax on imports.
The proponents of this tax contend it will stop businesses from leaving our country—because right now, some are moving overseas to avoid paying our corporate tax rate, which is the highest in the modern, industrial world. Under this proposal, it wouldn’t matter where you put your headquarters. You’d be taxed according to what you bought, not where you put down your stakes. And the hope is this arrangement would mean more headquarters and more factories—and the jobs that come with them—staying right here in America.
Which of course is a desirable goal, no doubt. But I’m not at all convinced this is the best way to do it. Just consider this: It’s estimated that this one change alone would produce something like $100 billion a year in additional tax revenue. That’s a lot of money, and someone has to pay it. And I’ll tell you exactly who’s going to pay: working Americans who’ve been struggling for decades. A tax on imports is a tax on things working folk buy every single day—and I’m not talking about caviar and champagne. I’m talking about T-shirts, jeans, shoes, baby clothes, toys, groceries. I’ve heard from thousands of Arkansans who are already struggling just to get by. Why would we make the stuff they get at Walmart more expensive?
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. So I’m more than a little concerned that these predictions won’t pan out—as the old joke goes, after all, economists have predicted nine of the last five recessions. But if that happens, it won’t be economists, intellectuals, and politicians in Washington and New York left holding the bag—working Americans will get stiffed again.
Finally, I want to say a word about jobs. One of the biggest reasons for fixing the tax code is that it would help create more jobs. But if we increase the costs of goods, people obviously can’t buy as much, which will hurt retail sales—and retail jobs too. Retail companies are the largest private-sector employers in almost every state. Are we really going to impose a huge tax on the livelihood of so many Americans and say, “Oh, don’t worry; it’ll all work out in the end”? We have to take a hard look at this proposal right now.
Therefore, while I support fundamental tax reform and commit to reserving judgment on any final bill until I read it, today I want to put on the record my serious concerns about a border-adjustment tax. Many other senators share these concerns and we most certainly will not “keep our powder dry” and see working Americans railroaded with a pre-cooked deal that raises their taxes and increases the prices of the stuff they buy every single day.