Trump Floats 20 Percent Border Tax as Mexico Feud Deepens

  • Mexico’s president cancels U.S. visit over Trump border wall
  • Trump demanding Mexico pay for wall on U.S. southern border

Mexico's Pena Nieto Cancels Meeting With Trump

The Trump administration floated a 20 percent tax on imports from Mexico to pay for a wall along the southern U.S. border, a plan revealed hours after Mexican President Enrique Pena Nieto canceled his first meeting with the new U.S. leader.

The idea of a border tax was first proposed by White House Press Secretary Sean Spicer to reporters on board Air Force One as Trump returned from a congressional Republican retreat in Philadelphia. Later in the day, Spicer amended his remarks in a meeting with reporters in his office.

“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico, if you tax that $50 billion at 20 percent of imports,” Spicer said on the president’s plane. “By doing that we can do $10 billion a year and easily pay for the wall just through that mechanism alone.”

Spicer didn’t explain how such a tax would work or how it would affect U.S. consumers and companies. Asked if the tax could be applied to other countries, Spicer said the administration is “focused on Mexico right now.”

Later, Spicer summoned reporters to his office and said the tax was only “one solution” to pay for the wall and might be applied at a lower rate. He said its economic impact would have to be examined.

The comments nonetheless suggested the White House is moving toward a “border adjusted” tax plan on companies’ domestic sales and imports that is favored by House Republicans as a replacement for the current U.S. corporate tax. House Ways and Means Chairman Kevin Brady, a Texas Republican and backer of the approach, called Spicer’s comments “very encouraging news.”

For a QuickTake Q&A on the Republican border adjusted tax plan, click here.

Spicer’s remarks were part of a conflict between Trump and Mexico that escalated over a 24-hour period after the U.S. president signed a directive Wednesday to initiate the process of building the border wall. Trump’s border plan rapidly exploded into a showdown that threatens one of the world’s biggest bilateral trading relationships.

The cross-border sparring prompted a drop in the Mexican peso, which fell 0.7 percent to trade at 21.21 per U.S. dollar following Pena Nieto’s announcement. Mexico’s currency has plunged almost 14 percent since Trump’s election on concern that Trump will renegotiate or scrap the North American Free Trade Agreement.

After Pena Nieto said in an address Wednesday that his country would refuse to pay for a barrier on the U.S. southern border, Trump blasted him with a tweet Thursday morning. “If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting,” Trump wrote.

Pena Nieto, who was to meet with Trump Jan. 31, responded a few hours later with his own tweet: “This morning we’ve informed the White House that I won’t attend the working meeting scheduled for next Tuesday with @Potus.”

Higher Prices

The border tax Trump floated wouldn’t be imposed directly on Mexico but instead added to the cost of products as they crossed the border. That would translate to either lower profits for companies that import goods such as Ford Motor Co., Wal-Mart Stores Inc. and Target Corp. or higher prices for U.S. consumers who buy the products.

“Mexico doesn’t pay for the wall,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “American consumers who shop at places that import, like Wal-mart and Target, pay for the wall, making it a regressive tax supporting a dumb, wasteful idea.”

The National Retail Federation condemned the plan hours after it surfaced. 

“Americans are already paying billions of dollars in tariffs and this is just going to result in one more price increase,” David French, senior vice president of the trade group, said in an e-mailed statement.

Republican Senator Lindsey Graham of South Carolina offered his own light-hearted criticism on Twitter.

“Border security yes, tariffs no. Mexico is 3rd largest trading partner. Any tariff we can levy they can levy. Huge barrier to econ growth,” Graham tweeted. “Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad.”

And Senator Ben Sasse, a Nebraska Republican who opposed Trump’s election, tweeted simply: “Tariffs are a tax on American families.”

Tax Overhaul

A border adjustment tax would radically remake the U.S. corporate tax system. House Republicans’ plan would apply a 20 percent tax rate to companies’ domestic sales while exempting their exports. Under the plan -- which would apply to all countries, not just Mexico -- businesses could no longer deduct the cost of imports they use or sell. The plan would generate roughly $1.1 trillion in revenue over a decade, according to an analysis by the conservative Tax Foundation.

Brendan Buck, a spokesman for House Speaker Paul Ryan, said that Spicer was describing the Republicans’ tax plan.

Currently, the U.S. taxes its corporations’ worldwide income at a 35 percent rate -- though they can use foreign tax credits to reduce that amount, and companies don’t have to pay any U.S. tax on overseas income until they bring it to the U.S.

House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell both suggested Thursday that, after months of studiously ignoring the border wall proposal, they’re now ready to act on the barrier as part of a spending request they expect from Trump that would help jump-start construction.

The two congressional leaders said they’re ready to spend as much as $15 billion from the federal treasury to build the wall.

Trump Promises

Trump won office with two central campaign promises: construction of a wall along the 1,989-mile border, at Mexico’s expense, to halt illegal immigration and an end to the decline of U.S. manufacturing jobs.

Also at issue is the Nafta accord among the U.S., Mexico and Canada. The U.S. and Mexico traded $531 billion in goods and services in 2015, almost five times the trade between the U.S. and U.K. Mexico is the third-largest trading partner with the U.S., following China and Canada, and it sends close to 80 percent of its goods to its northern neighbor.

For a QuickTake Q&A on renegotiating Nafta, click here.

Mexico’s Foreign Minister Luis Videgaray and Economy Minister Ildefonso Guajardo have been in Washington since Tuesday meeting with Trump administration officials to discuss the agreement.

“Negotiations are paralyzed," said Jose Antonio Crespo, a political analyst at the Center for Economic Research and Teaching in Mexico City. "It’s clear that Trump made this decision, because he imposed conditions that are unacceptable."

— With assistance by Billy House, Sahil Kapur, Steven T. Dennis, and Shannon Pettypiece

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