President Donald Trump appears to be inching closer to endorsing a border adjustment tax that stands as a cornerstone of the House GOP's plans for corporate tax reform.
On Thursday, White House Press Secretary Sean Spicer caused a stir when he suggested that the U.S. could impose a 20 percent tax on Mexican goods, as part of one possibility to pay for Trump's proposed border wall. The wall proposal created a diplomatic firestorm, and caused Mexican President Enrique Pena Nieto to pull out of a meeting with Trump next week.
The description by Spicer was cloaked in protectionist terms, and described as a 20 percent border tax on Mexico. Although his remarks were interpreted by some as a border tax, the proposal outlined by the White House spokesman actually echoes a plan floated by House Speaker Paul Ryan—which would suggest a border adjustment tax that differs from an ordinary tariff.
Currently, U.S. corporations are taxed on their worldwide profits at 35 percent, but the proposed Congressional Republican plan would change that radically.
The new tax formula would tax domestic revenue (minus domestic costs) at a much lower rate of 20 percent. The net effect would be one that favors exports over imports.
The idea is controversial among retailers, because large shares of their products are imported.
When asked by CNBC about Spicer's comments, AshLee Strong, a spokesperson for Ryan, said that "We have been and continue to be on the same page about tax reform that supports American jobs and American goods."