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CRS explains key differences between import tariff and border tax

One of the main components of Congressional Republicans’ “A Better Way” tax reform blueprint is a border adjustment tax. President Trump, however, has generally supported a tariff on imports and has proposed imposing them in a number of ways, ranging from an increased tariff on all imported goods to a high tariff on the imports of a company that moves its factory outside of the U.S. In a “Legal Sidebar,” the Congressional Research Service (CRS) has explained a number of the main differences between an import tariff and a border tax.

Import tariffs. A tariff is a schedule of duties imposed by the government on imported goods. The particular duty imposed on a good depends on its classification in the U.S. tariff schedule.

The Constitution vests authority over the imposition of tariffs and international commerce exclusively in Congress, but Congress has over time delegated limited authority to the President to modify tariffs by proclamation in various provisions of federal law.

RIA observation: While sometimes referred to as a “tax,” most of the border-related proposals advanced by President Trump, both on the campaign trail as well as in office, more closely resemble import tariffs. The proposals are generally offered as a way to promote domestic manufacturing.

Border adjustment taxes. A border adjustment tax is defined by the World Trade Organization as “any fiscal measures which put into effect, in whole or in part, the destination principle (i.e. which enable exported products to be relieved of some or all of the tax charged in the exporting country in respect of similar domestic products sold to consumers on the home market and which enable imported products sold to consumers to be charged with some or all of the tax charged in the importing country in respect of similar domestic products).” It is a destination-basis cash-flow tax.

The Constitution vests the taxing power exclusively in Congress, so the implementation of a border adjustment tax would require Congressional action.

The CRS observed that the GOP’s tax reform blueprint included proposals for a border adjustment tax that would impose a tax on imports while exempting exports from tax, in conjunction with lowering the corporate tax rate to 20% and switching to a territorial tax system.

RIA observation: The Trump Administration has sent mixed signals about the Republicans’ border adjustment tax proposal over the past few months, but in an exclusive interview with Reuters, Trump said that it “could lead to a lot more jobs in the United States” and that he “certainly support[s] a form of tax on the border.” See ¶ 4.
CRS Reports & Analysis Legal Sidebar, “Import Tariff or Border Tax: What is the Difference and Why Does it Matter?”
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