Are American-made products at a disadvantage to imported ones? That’s the argument supporters of a 20 percent tax hike on imports are making to justify their position.
Proponents of the increase claim that American-made goods are taxed at a higher rate than goods that are imported into the country. They are calling that the “Made in America” tax, but you’d be hard-pressed to find it.
That’s because American companies that import goods to the United States and American companies that produce goods domestically both pay the U.S. corporate tax rate. The United States does not impose any additional taxes on products that are made in America that are not imposed on imports — in fact, many imported goods are hit with tariffs and other fees when they enter the country.
There is no “Made in America” tax.
So, why do some in Washington want to raise taxes on consumers by a trillion dollars?
Proponents of the tax hike argue that because other countries have value-added taxes (VATs) or other consumption taxes, American-made products are at a disadvantage. But a VAT hits American-made exports to Japan, for example, the same way it hits Japanese-made products. The result is higher prices across the board for Japanese consumers, and we should be thankful we don’t have the same system.
So what’s the truth?
American companies are at a tax disadvantage compared with their global competitors because of our high tax rates, not because of some fictional “Made in America” tax.
The United States has the third-highest marginal corporate income tax rate in the world, at nearly 39 percent. Lowering that rate as much as possible is the most effective way of eliminating any disadvantage.
Further, U.S. companies that do business in other countries pay foreign income taxes on their profits, then get taxed again in the United States when they bring that money back home. That’s the real disadvantage for U.S. companies in the global economy — they end up paying higher taxes than their foreign competitors.
That’s why my organization supports a territorial tax system, which has been proposed by the House Ways and Means Committee and the Trump administration. Under a territorial tax system, which is used by almost every other country, U.S. companies would be taxed only on the income they earn here in the United States. They would not pay taxes on the profits they earn in other countries. It’s as simple as that: lower the corporate rate as much as possible and end our harmful system of worldwide taxation to allow U.S. companies to flourish in an increasingly global economy — without slapping a 20 percent tax on imports.
Punishing consumers with a trillion-dollar tax hike on imports won’t “level the playing field” or make U.S. companies more competitive. Instead, the tax will drive up the costs of doing business, leading to lower wages and inevitably higher costs for goods and products.
We have a tremendous opportunity to pass pro-growth tax reform. Congress can do that without imposing a new trillion-dollar tax hike on consumers.
• Mary Kate Hopkins is deputy director of federal affairs at Americans for Prosperity.