To wall, or not to wall – is that a question?
I’ve never been that swift in math, taxes, international diplomacy, or American politics for that matter. But ever since the President (Number-45, or maybe Colt 45, I’m going to call him – no more dash-elect, he’s the head honcho now!), ever since he made that campaign promise lo, those many months ago, that he will build a border wall and Mexico will pay for it, I’ve wondered how’s he going to hold those folks South of the Border to coughing up all those pesos!?!
The new Mexican President Enrique Nieto has already told folks that “Mexico, of course, will not pay” for Donald Trump’s wall. Nieto’s predecessor, former president Vicente Fox, was less succinct, declaring in a tweet: “TRUMP, when will you understand that I am not paying for that [expletive deleted] wall.”
Wrong, at least according to Washington Post writer Marc Thiessen. Trump absolutely can make Mexico pay. Thiessen says the answer lies in a provision of the corporate tax-reform bill House Republicans plan to take up soon: the so-called “border adjustment.”
Even though he’s criticized it, Trump should embrace border adjustment because it would force Mexico to give Uncle Sam every penny needed to pay for the wall, and then some.
First, Congress lowers the corporate tax from 35 percent to 20 percent and applies the tax based on the location of consumption rather than the location of production. How? Through a “border adjustment” that exempts exports while taxing imports. So all imports coming into the country would be subject to the 20 percent tax, but exports would have the tax refunded, making them tax-free.
Right now, over 160 countries worldwide have a “border adjusted” value-added tax (VAT). Here is where the wall comes in: the border adjustment would raise hundreds of billions in tax revenue from foreign trading partners, not from Americans. Under the border adjustment, the United States would refund the tax on exports and charge it on imports, so the net revenue would be negative if America had a trade surplus, and positive if it had a trade deficit.
Because the USA has a trade deficit, economists calculate the border adjustment would bring in about $120 billion a year, or $1 trillion over a decade.
Now with whom does the U.S. have a large trade deficit? Mexico.
The U.S. trade deficit in goods with Mexico is expected to be around $65 billion in 2016. So if Mexican imports are taxed at a rate of 20 percent, that raises about $13 billion a year in revenue from Mexico via the border adjustment.
Trump says the wall will cost somewhere around $12 billion. Others say as high as $25 million. Either way, the full cost would be more than covered in about two years by the $13 billion in annual revenues he could collect from Mexico. So, over several years, the border adjustment could force Mexico to pay not only for the wall, but for a lot more of Trump’s border-security measures like deporting criminal aliens, more screeners for “extreme vetting” – and, oh yes, more border patrolmen.
This way, Trump taxes imports and subsidizes exports, while forcing Mexico to pay for his wall.
And here is your light-bulb moment: with the border adjustment, Mexico couldn’t complain, because how can they object when they’re one of the countries that has a value-added tax of its own?
So yes, thanks to the border adjustment, Donald Trump can indeed make Mexico pay for the “BLEEP-ing wall”, and Mexico couldn’t do a BLEEP-ing thing about it.
Score one for the Donald, er, Mr. Colt 45.
Gene Motley is a Staff Writer at Roanoke-Chowan Publications. Contact him at firstname.lastname@example.org or 252-332-7211.