February 2017 | Business View Magazine

2 3 R Editor-in-Chief Al Krulick Associate Editor Lorie Steiner Director of Advertising Lauren Blackwell Vice President of Business Development Erin O’Donoghue Research Directors Paul Payne Rohan Stewart Brendan McElroy Creative Director Dana Long Vice President of Production Aimy McGrew Vice President of Publishing Andre Barefield CGO Alexander Wynne-Jones COO Brian Andersen Executive Publisher / CEO Marcus VandenBrink USA Canada Caribbean Oceania Email for all inquiries: info@businessviewmagazine.com www.BusinessViewMagazine.com From the Editor Right now inWashington,D.C., there is some confusing talk going on about two very different things, although, to the layman, they sound verymuch the same.The fact is–they aren’t. I’m talking about the ‘border tax,”and the ‘border-adjustable tax.’ The border taxmade it into the news recently when President Trump’s administra- tion floated the idea of slapping a 20 percent tax on goods coming into the company from Mexico, the U.S.’s third largest supplier of imports–chiefly vehicles, electrical machin- ery,mineral fuels, and agricultural products. Trump wanted the Mexican government to pay for his border wall via this border tax, but the notion was quickly withdrawn when it was pointed out that the American consum- er would actually wind up paying more for those same imported goods, as companies south of the border would simply raise their prices in order to pay the tax. Essentially, a border tax is a tariff. Its goal is to boost domestic manufacturing by punish- ing U.S. firms that move production overseas while curbing imports from certain countries. Tariffs are not generally seen as productive aspects of trade policy as they often promote retaliation while raising prices on imported goods. In contrast, a border-adjustable tax, or as it’s known among the Washington cogno- scenti, a ‘destination-based cash flow tax with border adjustment,’is part of a major overhaul of the country’s tax laws that House Republicans have been considering for some time. The basic idea behind the border-adjust- able tax is to turn corporate taxes on their head. Currently, the U.S. taxes companies on their exports but not their imports. So, say you are a domestic company that makes computers in the U.S. Under the current tax code,you have to pay a 35 percent profits tax on the computer made here and sold anywhere–domestically or abroad.Now, let’s say you move that computer assembly plant to Mexico City.The U.S. imposes no tax on that imported computer, and your compa- ny can deduct the costs of your “overseas” expenditures. A border-adjustable systemwould act like a sales taxon imports andwould affect any countrywithwhich the U.S.runs a trade deficit– meaningmost of theworld.Under the plan,U.S. companies would no longer be taxed on the revenue theymake fromgoods sold for export. Bycontrast,theywould have to paya 20 percent taxon imported goods andwhen theycalculate the income tax theyowe,theywould not be allowed to deduct the cost of goods that they bring into the country,which they can do, now. As a result, supporters say,manufacturers would be better off building products in the U.S. and exporting them, rather than import- ing goods for sale.The plan would essentially subsidize exports and discourage imports. Supporters add that border adjustability would be more efficient than current law, reduce opportunities for companies to game the tax system, and make the tax treatment of imports and exports more equitable. Of course,with anymajor change of the U.S. tax code, there will be losers and winners.Oil refineries, retailers, and other large importers, for example, have lined up against the plan, fearing that the inability to deduct the cost of imports from their tax bill could eat heavily into their profits.They say that a border-adjusted tax penalizes those industries that rely on imports and have no easy replacement for them. By contrast, big exporters such as domestic crude oil produc- ers and makers of machinery would see their tax bills fall. Over the next several months, both these items will continue to appear in the news. The difference is that the border tax is prob- ably going nowhere,while the border-adjust- able taxmay well be on its way to becoming the law of the land. Stay tuned. Al Krulick Editor-in-Chief 12559 New Brittany Blvd Fort Myers, 33907 239.220.5554 Contact us