My American Enterprise Institute colleague @kylepomerleau.bsky.social and I respond to the Wall Street Journal’s defense of section 899 of the reconciliation bill, which would impose retaliatory taxes on inbound investment.
A useful primer on the Section 899 changes in reconciliation (which would punish investors from Pillar II-compliant countries) by @stanveuger.bsky.social and @kylepomerleau.bsky.social. We don't always agree on international tax issues, but their analysis here is cogent and incredibly useful.
A crucial insight by @kylepomerleau.bsky.social and @stanveuger.bsky.social of AEI on the so-called "revenge tax":
It could undermine foreign investment just to have this law on the books, regardless of whether and how Treasury exercises its broad discretion.
Lawmakers Should Keep “Transferability” of IRA Credits Intact
"One IRA provision [the Republicans] may have set their sights on is called “transferability.” Repealing this policy would be a mistake."
9/9
www.aei.org/economics/la...
Should Lawmakers Raise the Stock Buyback Excise Tax?
"Lawmakers are right to want to limit the cost of extending the TCJA. Increasing the excise tax on stock buybacks could raise needed revenue but would have notable downsides that need consideration."
8/
www.aei.org/economics/sh...
Export Subsidies Won’t Reduce the Trade Deficit Either
"Lawmakers should be less focused on the trade deficit, but if lawmakers do want to reduce it, they should focus on policies that actually affect it."
7/
www.aei.org/economics/ex...
Tariffs will Make It More Expensive to Invest in America
"...tariffs apply to capital goods like machinery and equipment used by businesses. This means that tariffs, unlike consumption taxes, can penalize investment.
6/
www.aei.org/economics/ta...
Tariffs Cause Short-Term and Long-Term Economic Pain
"The administration and its supporters argue that the market reaction is only temporary and that the tariffs will only result in short-term “pain,” but the economy would benefit in the long run. They are wrong."
5/
www.aei.org/economics/ta...
Getting Business or “C” SALT Right
"Lawmakers are currently considering a limitation on the business deduction for state and local taxes paid (C-SALT)...There is a case for some limitation."
4/
www.aei.org/economics/ge...
A Preferential Corporate Tax Rate for Manufacturing Would Be Bad Policy
"It’s not clear why the tax code should prioritize manufacturing, but if lawmakers do, they would be wise to avoid special lower tax rates and consider, instead, accelerated depreciation."
3/
www.aei.org/economics/a-...
Four Things to Know About Border Adjustments
"Border adjustments are a broadly misunderstood policy... basing US tariffs on foreign VATs would make a bad policy even worse."
2/
www.aei.org/economics/fo...
It's been a while (it's hard to keep up with multiple social media platforms).
Here are a few recent blog posts:
1/
How do tariffs impact businesses, consumers, and the economy? And how will this administration's new policies affect the US? Join SPA's Project on Civic Dialogue as Mindy Herzfeld & @kylepomerleau.bsky.social break it all down.
📅 Tue, 4/8 🕒 4-6 PM ET📍 Kerwin 301
🔗american-spa.swoogo.com/pcdtariff
New working paper: A Mandatory High Tax Exclusion for GILTI
I explore a reform that would reduce MNE profit shifting incentives without greatly increasing complexity and would raise either $68.5 or $72.9 billion over ten years.
www.aei.org/research-pro...
Clean-ish because they dont have the time to make big changes (while negotiating everything else), they will need to add SALT changes and other Trump proposals (tips).
Given the political costs of large, broad based tariffs and the quick push for a single bill, it seems increasingly likely we will see a clean-ish temporary extension.
CBO’s Analysis Shows Importance of Fiscally-Sustainable Tax Reform.
www.aei.org/economics/cb...
Goods exemptions make no sense for climate policy, but for tariff policy, this is par for the course.
"Please tax my import competition, but please don't tax my inputs!"
www.eenews.net/articles/cas...
Good illustration of Trump's misunderstandings of bilateral trade deficits (at 1:15):
"We're subsidizing Canada to the tune of over $100 billion a year. We're subsidizing Mexico for almost $300 billion."
Yeah, that's just not how this works.
Although a border adjustment was proposed alongside a cash flow tax in '16, it need not be attached to any specific tax to be trade neutral.
Preston, here, is proposing a 7% border adjustment.
It is interesting to think through the differences.
To get from a tariff on some goods to a border adjustment would require applying the tax to not only all goods, but all services. Then it would require a subsidy on all exports.
I think a border adjustment would be good policy, but I think this strategy is too clever by half.
"It's actually protectionist, so Trump should love it" ended up killing it last time.
www.msn.com/en-us/money/...
One for the Bluesky tax policy wonks!! Really enjoyed helping out with this project last year: it's a bipartisan collaboration of scholars @ AEI and Brookings on how we can make taxation of wealthy Americans fairer, more efficient, and less distortionary. Ungated PDF: www.aei.org/wp-content/u...
Two "neat" things about paper:
1. We estimated the magnitude of these distortions from 1960 to present. Things have generally improved over time due, primarily, to lower statutory tax rates
2. We discuss how either income or consumption tax reforms could further improve things.
New paper with @billgale.bsky.social is no longer paywall'd:
Efficient and Equitable Income Taxation of the Affluent
We review 6 ways in which taxing high-income households impact economic efficiency.
www.aei.org/articles/eff...
Not sure what my point is here. Perhaps I am agreeing with you: focusing on the trade policy/trade balance is not going to be fruitful.
Why wouldn't subsidies also be headwinds for exporters? If the subsidies result in inbound FDI, that will increase value of USD. (At least it won't result in retaliation).
New, from me: Trump promised to raise taxes, but Biden and Congress could tie his hands
www.latimes.com/opinion/stor...
This is true!
But it doesn't change the fact that tariffs reduce real incomes, distort trade, etc.
Not sure, but they certainly can pass legislation to overturn tariffs enacted by the administration.
