A Tax-Reform Alternative to Tariffs Is a Trap

The DBCFT is a clever acronym for an old Beltway habit: spend more, tax more and call it reform

Letter to The WSJ. 

"Paul Ryan and Kyle Pomerleau propose a destination-based cash-flow tax as “A Tax-Reform Alternative to Trump’s Tariffs” (op-ed, Oct. 15). But their argument mistakes a novel blackboard theory for sound policy. A DBCFT would grant Washington a new money spigot while leaving protectionism intact.

President Trump believes tariffs are fundamentally good. If the Supreme Court reins in his use of the International Emergency Economic Powers Act, he will turn to other authorities such as Section 301. If Congress grants him the power to impose a new border-adjusted tax, we will get both.

The notion that a DBCFT would address Mr. Trump’s trade concerns by being a smarter way to tax imports and that currency appreciation will offset its effects are mutually exclusive. If the dollar appreciates enough to neutralize the tax, the market will adjust and trade flows and the real trade deficit won’t change much. If it doesn’t, the DBCFT will raise prices, invite retaliation and disrupt supply chains.

The policy’s supposed fiscal virtue is precisely what makes it dangerous. The tax is popular in Washington because it’s a money machine. We should remember why Congress abandoned the policy in 2017. The DBCFT is a clever acronym for an old Beltway habit: spend more, tax more and call it reform. The solution to Mr. Trump’s tariffs is more mundane: Congress must reassert its power to levy tariffs and limit spending.

Adam Michel and Veronique de Rugy

Cato Institute and Mercatus Center"