Yes, Republican Leaders Are Pushing For New Tax Increases
1. The Republican “Border Adjustment Tax” is a Bad Idea
2. Old-Guard Republicans Pushing a Bad New Carbon Tax
3. Trump to Fill Three Fed Seats Following Surprise Resignation
4. Franklin Square Investment Company Webinar – February 24
Whether you are a Republican or a Democrat, conservative or liberal, you will want to be aware of what I write about below. The “Establishment” Republican leaders are quietly pushing for a huge tax increase that has yet to get much attention in the mainstream media.
This new tax increase is called the “Border Adjustment Tax” (BAT). In essence, the BAT would impose a 20% tariff on all imports to the US. If enacted, it will mean significantly higher prices for imports and anything made in America that includes imported goods.
You probably haven’t heard about this trade-killing tax since its main proponents, House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady (both Republicans), have done their best to keep this effort quiet.
The good news is that if enough Republicans oppose Ryan, Brady and their backers, this anti-trade tax will not see the light of day. Like I said, whether you are a liberal or conservative, you need to know about this since it could mean a big cost-of-living price increase for all of us.
Sadly, the BAT is not the only bad tax being promoted by Republicans. Another group of Republicans is lobbying President Trump for a new “carbon tax” in exchange for a “significant” rollback in EPA regulations. The GOP promoters of this new tax claim it will help the economy and benefit working-class Americans. A closer look finds it will do neither and is another very bad idea. I’ll fill you in below.
There is more in today’s E-Letter, but let’s get started now.
Tax Reform: The Ryan/Brady “Border Adjustment Tax” is a Bad Idea
Candidate Donald Trump campaigned hard on the promise to cut income taxes for individuals and corporations and to simplify the tax system overall. Indeed, this very promise helped him win several key states where Hillary was expected to prevail. So why are we talking about tax increases at all? Beats me.
Basically, the Border Adjustment Tax being spearheaded by House Speaker Paul Ryan and Committee Chairman Kevin Brady would apply a 20% tariff on all goods and services imported into the US, while exports from American companies would pay zero tax.
A Tax At The Border Is A Tax On YOU
A truck crosses the border between Mexico and the United States in Laredo, Texas.
Future goods crossing the border might be taxed at a 20% rate, thanks to a proposed
Border Adjustment Tax now being considered in Congress and by the White House.
The promoters tell us that the BAT would reduce imports (duh) while making US exporters more competitive, and discourage American companies from moving offshore. They promise it will create lots and lots of new jobs, especially in the export sector.
As is typical of bureaucrats, they fail to see (or admit) the negatives and the unintended consequences of this anti-trade tax. The most basic of which is the fact that foreign manufacturers don’t pay tax increases; they pass them on to consumers in the form of higher prices. So in that regard, the BAT would be a big tax increase on US!
Second, millions of US manufacturers import goods and parts to make the products they sell in the US and abroad. If the price of these imported goods go up by 20%, as a result of the BAT, then the price of those manufactured products will go up accordingly. This is not rocket science!
Third, if we impose a 20% tax on imports from abroad, there’s nothing whatsoever to stop those same countries from imposing a similar tax on goods we export to them. The promoters of the new tax argue that the BAT will cause the US dollar to rise significantly (maybe by a third or more), but there is no guarantee that will happen. Even if it did, a sharply higher dollar is not altogether a good thing.
Finally, one thing to keep in mind is that the BAT, if implemented, is not just a tax on Mexico, as some Americans mistakenly assume. It would be a tax on all foreign companies that send goods into the US. As such, it could be the primary catalyst for a new global trade war.
All in all, the Border Adjustment Tax seems like a Rube Goldberg device at best. Rather than trying to sell Americans on a confusing new import tax, Republicans would be wiser to stick with real reform: Make taxes lower, flatter and fairer for everyone, and stop punishing savers and investors.
Fortunately, it seems to me that support for the BAT is waning, especially among Republicans; Democrats, of course, never met a tax increase they didn’t like. The proposal to enact the BAT has been presented to President Trump, and we’re told he is considering it. I can’t imagine his advisors letting him go down that road, even if he were to favor it. We’ll see.
There are some links in SPECIAL ARTICLES below that explain the BAT in more detail.
Old-Guard Republicans Pushing the Idea of a New Carbon Tax
In the month since Republicans took control of the House, Senate and White House, they've been talking a lot about taxes. Unfortunately, the talk is about adding two entirely new taxes to the code. One is the BAT discussed above.
Last week, a group of old-guard Republicans and business leaders -- including Reagan administration officials, former Wal-Mart chairman Rob Walton and venture capitalist Thomas F. Stephenson, among others -- were in the White House pitching a new carbon tax to fight global warming.
The idea is to impose a $40 tax for every ton of CO2 emitted in exchange for a “significant” rollback in EPA regulations.
This group, called the Climate Leadership Council, describes this as a conservative, free market approach to the fight against global warming, one that will, according to its report, “strengthen our economy, benefit working-class Americans, reduce regulations … and consolidate a new era of Republican leadership.”
Why Are Republicans Pushing For a New Carbon Tax?
James A. Baker, former Secretary of the Treasury under Ronald Reagan, and now a
prominent member of The Climate Leadership Council, is pushing for a new carbon tax
as an alternative to current CO2 regulations. Mr. Baker remains a liberal Republican.
Yet it doesn’t take a deep dive into the Council’s carbon tax report to quickly see that this new carbon tax won’t deliver on any of the promises being made.
First, no matter where it starts, this new tax -- like every other one ever enacted -- will grow in size and complexity. The Council itself admits it wants the tax to “increase steadily over time.” Here again, the promoters of this tax fail to admit that it will disadvantage American companies that emit carbon, to the benefit of companies in countries which don’t have such a tax.
No matter how well constructed, this tax will redirect resources away from their most productive uses and into government coffers. That is not how you strengthen an economy.
Plus, while the tax would start immediately, the EPA's regulatory authority would only be “phased out” over time. This is naive in the extreme. Once the tax is in place, there will be endless pressure to keep both the tax and the regulations.
Consumers, of course, will ultimately bear all these costs in the form of higher prices on just about everything. There’s an energy cost component in virtually everything we consume. Some estimate that the carbon tax could add 30¢ to the price of a gallon of gasoline.
But the plan proposes to return “all the proceeds” of the carbon tax (minus the government's handling charge, of course) to the American people in the form of dividend checks. In other words, these Republicans not only want to create a brand new tax, they also say they want to create a brand new middle-class entitlement – which may or may not ever happen.
Finally, the Council has deluded itself into believing that if Republicans get a carbon tax enacted, they will win over legions of young voters, Latinos and Asians who are “deeply concerned” about global warming. Really?
All this for a tax that isn’t needed in the first place. The US has been cutting its carbon emissions for decades without any carbon tax or massive EPA regulations. A big driver of this has been fracking, which let power companies switch from coal to cheaper and less carbon intensive natural gas.
But even without the fracking breakthrough, the economy will get cleaner for the simple reason that a competitive market rewards efficiency. Energy is a big cost, one that companies relentlessly try to reduce.
Here’s my idea for how to deal with global warming: do nothing more at this time. Let the free market work and let the nation grow more prosperous, so that we have the resources available to deal with whatever problems climate change might cause down the road -- if they happen at all.
Trump to Fill Three Fed Seats Following Surprise Resignation
Daniel Tarullo, one of five current Federal Reserve Board Governors, announced last Friday that he will resign his position in April, even though his term doesn’t expire until 2022. Mr. Tarullo held the position of Vice Chairman for Bank Regulation at the Fed.
The Fed Board of Governors consists of seven members appointed by the sitting President and confirmed by the Senate. Yet since 2013, there have been two unfilled seats on the Board, because the Senate was unwilling to confirm President Obama’s nominees for those seats.
Now, with the unexpected resignation of Mr. Tarullo on April 5, the Board will have three vacant seats on the Board for President Trump to fill. The obvious signal from Mr. Tarullo’s exit is that a big shift in financial regulation is indeed imminent.
And let’s not forget that Janet Yellen’s term as Fed Chair expires in February 2018, at which time Trump will also be able to appoint her successor. So that’s a total of four seats Trump will fill on the Fed Board of Governors.
In any event, President Trump now has the opportunity, for better or worse, to reshape the leadership at the Fed in a significant way in the next two years and perhaps beyond. I’ll keep you posted.
Franklin Square Investment Company Webinar – February 24
Last year, we found a new investment opportunity for those investors seeking consistent yield on their investments, Franklin Square Investment Company III (“FSIC III”). It was one of the three investment strategies referred to in our recent Special Report – The Search for Yield in an Uncertain World.
I invite you to join us for a live webinar with Franklin Square on Friday, February 24th at 2:00 PM (CST) and learn more about their FSIC III fund.
FSIC III is a Business Development Company (BDC) that primarily invests in floating rate, senior secured loans of private US middle market companies. The strategy seeks to lend to middle market companies with defensible market positions, stable positive cash-flow, proven management teams and viable exit strategies.
FSIC III’s objectives are to generate dependable current income, and to a lesser extent, long-term capital appreciation. Since they do not invest in traditional stocks and bonds, they are not highly correlated to the stock and bond markets.
Franklin Square Capital Partners has over $16 billion in assets under management. They partner with GSO Capital Partners, a Blackstone Company, which is one of the largest non-bank lenders in the world.
To register for the webinar, go to www.halbertwealth.com/webinar. The webinar is free of charge and will last apprx. 30 minutes, after which you will have an opportunity to ask questions of the managers – which is always interesting.
You can also call us at 800-348-3601 to reserve your spot, or if you want to learn more about FSIC III before then.
All the best,
Gary D. Halbert
Breakdown: Border Tariff vs. Border Adjustment Tax
Steve Forbes to President Trump: Why the Border Adjustment Tax is a Bad Idea
Carbon Tax Won’t Curb Climate Change, But It Will Clobber Growth