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A Conservative Conundrum February 23, 2017 5:00 PM | Tagged as BAT, Border Adjustment Tax, Laffer

WSJ 22 February 2017, “How ‘Border Adjustment’ Poisons Tax Reform” by Phil Gramm

WSJ 5 January 2017, “The House GOP’s Good Tax Trade-Off” By Martin Feldstein

The Biz Bucks Guy is in a real quandary. The issue is the so-called border-adjustment tax (BAT) being discussed as a possible part of the Republican-proposed 2017 Tax Reform Act.  Not being a Ph.D. economist, The Biz Bucks Guy relies on the opinions of a variety of classical economists, from Steven Moore, Art Laffer, Phil Gramm, Larry Kudlow, Martin Feldstein, and others. True to form, the typically conservative economists are in sharp disagreement among themselves about the BAT. The first “BAT-man” to write about this in the WSJ was Martin Feldstein, Reagan’s chief economist now at Harvard. See his piece referenced above. Other Batmen (not necessarily economists) include Paul Ryan, the Speaker of the House, and Kevin Brady, House Ways and Means Chair. Ryan and Brady control the conversation about tax reform. The Batmen say without BAT, tax reform is dead. WOW, Nellie. That’s a bit over the top.

The Anti-BATs include Steve Forbes, Senator Tom Cotton, and Phil Gramm. See Gramm’s op-ed referenced above.

Corporations are also split. Some are endorsing it; some are fighting against it; some are keeping their powder dry for a future showdown. No one knows where members of this last group may eventually stand. Entire sectors are split, like energy companies.

The underpinning of the BAT argument is the phrase “budget neutrality”. To get anything through the Senate, the tax reform bill will need to pay for itself, meaning the tax cuts must be made up by something to offset the loss of federal revenue. If the bill is revenue neutral, the bill can be passed through budget reconciliation with a 50-vote majority. Without the budget neutrality, the bill would require a 60 vote super majority. The rub is this: Who scores the bill? Answer: the Keynesian Congressional Budget Office. These static scorers think that the higher we tax, the more the federal fisc receives. That is non-sense. Many, including The Biz Bucks Guy, believe our current tax policy is so devastating to businesses and individuals that tax revenues will actually increase with a tax cut. That is called dynamic scoring. It has been proven with each of the four times taxes have been cut, during Harding/Coolidge, JFK, Reagan, and Bush 43. Each time revenues increased.

The economist The Biz Bucks Guy admires the most is Art Laffer who was Reagan’s chief economist. He made it clear today on Cavuto’s show on Fox News Channel that we don’t need to worry about the deficit with a large tax cut. In a year or two, the revenues will massively overtake the deficit and the national debt will drop. Our nation will be on an amazing growth curve. Growth solves most of our economic problems.

The problem is we can’t get the bill passed with 60 votes and the Congressional rules say static scoring is necessary to use the budget reconciliation process which opens the door to passage with only 50 votes.

Nonetheless, this conservative votes to dump BAT and follow Laffer. We don’t need a new tax, and the mischief that that opens up. Find the 60 votes. Buy eight Democrat Senators with goodies and get on with turning our nation’s economy around.

[Although opinion is included, The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]


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