Trump's ‘Reciprocal Tax’ Seen Affirming His Love of Tariffs

  • Comments may reset expectations -- or just rebrand the debate
  • Remarks on border-tax idea suggest ‘he hasn’t decided yet’

Americans might want to brace themselves for political arguments about the “reciprocal tax,” the “matching tax” or the “mirror tax.”

But if President Donald Trump has anything to say about it, they won’t be hearing much more about the “border-adjusted tax.”

Trump made clear last week that he’s not fond of that name -- nor the controversy that has sprung up around the BAT, a key feature of House Speaker Paul Ryan’s plan to rewrite the U.S. tax code. Retailers, automakers and oil refiners that rely on imported materials have all complained that Ryan’s proposal to tax U.S. companies’ domestic sales and imports while exempting their exports would mean higher prices for consumer goods.

“When you say I’m going to charge a 10 percent or a 20 percent border tax, everyone goes crazy, because they like free trade.” Trump said during an interview aired by Fox Business Network Wednesday. He added later: “But when you say ‘reciprocal tax,’ nobody can get angry.”

That may remain to be seen. Economists and tax experts who parsed Trump’s remarks say the president appeared to be calling for import tariffs -- that is, taxes levied on specific goods or countries at varying rates. In describing his vision, Trump called for taxing imports from other countries at the same rates those countries impose on U.S. products.

“You say, ‘OK, whatever you charge, we’re charging,”’ Trump said. Left unsaid was how or whether Trump’s plan would tax U.S. companies’ exports.

‘Import Tariffs’

“He’s mostly talking about import tariffs,” said Chad Bown, an international trade specialist at the Peterson Institute for International Economics. Economist Alan Viard of the American Enterprise Institute agreed, adding that import tariffs, without corresponding export subsidies, “raise prices on imported goods relative to other goods, reducing trade and lowering consumer well-being.”

Trump’s television comments -- the first extensive remarks he’s made about his tax-overhaul plans in weeks -- left much room for interpretation. For example, in one reference to his reciprocal-tax idea, he said, “And I’m not saying that’s what I’m doing.”

White House officials say they’re in the early stages of crafting tax legislation -- and some have taken pains to put the president’s stamp on it, even before it’s ready. “You will have a White House-Donald Trump tax plan that we are going to take down to the Hill and try and sell,” Mick Mulvaney, the director of the Office of Management and Budget, said during a CNBC interview Wednesday. Trump told the Wall Street Journal that he doesn’t intend to release any details of his tax plan until Congress approves legislation to repeal Obamacare -- a measure that failed to make it to a House vote last month.

Ryan’s Blueprint

Meanwhile, the House Ways & Means Committee is working on Ryan’s blueprint, which would replace the 35 percent corporate income tax with the 20 percent border-adjusted tax on companies’ domestic cash flow.

“I can just say broadly that -- it is clear the president and House Republicans are sick and tired of America being at a competitive disadvantage and it’s time for pro-growth tax reform that levels the playing field for American workers,” said Emily Schillinger, a spokeswoman for the tax-writing panel.

It’s not precisely clear whether the president opposes the BAT, which would impose a single tax rate on U.S. companies’ imports, or just its name. Last week, Trump -- a billionaire whose businesses revolve around branding -- riffed through what he considered a number of better names, including “mirror tax” and “matching tax.” Both imply that he’s thinking about an approach that creates different tax rates for imports from different countries.

Prior Statements

“You could read his comments as re-branding BAT, but then again, you probably shouldn’t do that,” said Harold Hancock, who served as tax counsel to the Ways & Means panel for six years before joining law firm McGuireWoods LLP last month. “It’s clear he hasn’t yet decided” whether he’s on board with Ryan’s proposal.

Treasury Secretary Steven Mnuchin first floated the idea of a “reciprocal tax” in late February, in reference to Trump’s thinking. “An idea that he’s looking at calling a reciprocal tax, which is basically saying we want to create a level playing field so that other countries treat us the way we’re treating them,” Mnuchin said during a Fox interview.

Trump has also previously called for tariffs of as much as 35 percent on the imported products of U.S. companies that move manufacturing jobs overseas. Still, among tax-policy watchers, the president’s latest comments have fueled new thinking that Trump is headed toward broader import tariffs.

“His plan on tax is, ‘whatever you’re going to do to us,’ we’re going to do to you,”’ said Henrietta Treyz, a managing partner and director of economic policy at Veda Partners. “‘Reciprocal’ is everything.”

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