2017 Major Changes in Tax discouraging imports, encouraging exports

Economy & Finance
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Before going out, I happen to notice this coming change, both Trump and Rep, in 2017. Imports depended companies pays extra taxes while domestic enjoys tax benefit. Looks to me nice for US Based companies. It is a step towards domestic production and domestic companies which Obama or demo missed last 8 years.

Hail Trump !

How border adjustment works

To see how big a change this would be, it helps to imagine two US-based companies. One of them makes most of its money from exporting US-products abroad and one the makes most of its money from importing products and then selling them to US consumers. Let’s call them ExpCo and ImpCo. (Thanks to Kyle Pomerleau at the Tax Foundation for this example, which I’ve borrowed with some alterations).

Suppose, for ease of illustration, that ExpCo and ImpCo each earn $1,000 a year in revenue from selling their products. ExpCo spends $800 a year buying component parts for its products, meaning it makes a $200 profit. ImpCo spends $800 a year buying imported products from abroad, so it also makes a $200 profit.

The way the corporate tax works now, those profits would (all else being equal) be treated the same: each would be subject to a 35 percent tax rate, so both companies would pay $70 a year in taxes, and have $130 in after-tax income.

But border adjustment changes the math dramatically. ExpCo makes all of its revenue from exporting its products, but because that revenue would be exempt, its taxable revenue would be $0, and its taxable income would fall to -$800. Under the new 20 percent tax rate, it’d get a rebate of $160 from the government. The Republican plan gives ExpCo a tax cut of $230.

ImpCo, by contrast, would still be accountable for all its revenue, but also would not be allowed to deduct the $800 it spends on imported goods. Its taxable profit would spike to $1,000, and even with the lower tax rate, it’d face a bill of $200, eating up all its profits.

ImpCo and ExpCo are fictional, but their predicaments loosely fit those of a lot of real companies. Boeing, for instance, makes a large share of its revenue from selling planes abroad. It would benefit, just like ExpCo would. Walmart, by contrast, imports an enormous share of the products it sells to American consumers. Not being able to deduct imported goods would dramatically change its tax situation.

Another example given by other site

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Source:

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I’m curious how it’s impact revenue. Business taxes are only ~3% of federal tax revenue, so it should be too detrimental. I think we may hit a point where more manufacturing happens in the country the product is sold. I wouldn’t expect it to create a ton of jobs though due to aumtomation.

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Is this scenario realistic for the ExpCo and ImpCo? If it’s true, it would create jobs and would create troubles for China, South Korea, Germany and other export heavy contries. Is this kind of corporate tax violating any WTO regulations?

This tax policy would dramatically limit manufacturing outsourcing. But how about service job outsourcing such as software engineering and business services?

It would seem a good tax policy. But is it too good to be true? Is there any retaliation from foreign countries? If it’s so simple, why was it not done already?

For us, it would be mean much retail higher price and a huge inflation. Maybe we should all rush to buy German cars since Germans are not setting up manufacturing plants in US.

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This tax policy works only if:

a. Other nations will not implement similar policy; and
b. Demand of the products are inelastic.

Otherwise, global trade would shrunk rapidly, everybody become poorer. The decrease in demand, together with automation, mean there won’t be much jobs created. I believe the only way is education, retraining and other adaptation to help in the transition to “no need to work” paradise. IMHO, automation and advancement in AI and robotics would lead to a world where most of us don’t need to work. The big issue is how to manage the anxiety and daily needs of those “unemployed”?

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Apple CFO warns against border tax

But critics like Maestri have pointed out that the tax would raise prices for consumers, slowing consumption and decreasing demand.

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Right,it will increase the prices. We first need jobs here, that is survival of local population. If job market is improved, it is good for local economy.

Kudos to Trump !

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Not a clue about economics, just using my ignorant mind.
Which wages are going to be increased if under republicans they avoid to touch the delicate topic of wages that are OK to sustain many American suffering by the high cost of living. Will the free market play a role on wages being increased by supply and demand?

In order to produce an IPhone, Apple uses slave labor in China. And if they move their manufacturing back to the US, how much the phone will cost? And who is going to buy it at that huge price increase knowing that is sold worldwide?

This can be achieved only, and only if we return to the old times where Made in the USA was a highly sought commodity. But, then, what’s going to be the preference in the third world countries? Cheap or good? They will pick cheap and that’s where China has a huge advantage.

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9

IMO, most of the routes big corporate are moving jobs on two factors. 1) Cheap labor overseas 2) Reduced corporate tax overseas.

What Trump Administration is doing is cutting both using protection to US Manufacturing companies. It is different kind of thinking than last 40 years. This kind of protectionism is very likely help US economy in the short run. In the long run, it will improve the job base.

This is No 1 Agenda of Trump and let him do ! Companies and people (cost increase) will adjust soon.

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That is not true for Apple. The supply chain of components are mostly in East Asia. In fact is the main reason why Apple is forced to assemble in China. Cost of assembly is peanuts, a tiny portion of the cost of manufacturing.

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Brazil has massive import tariffs. It sucks for consumers. I think the threat of them is to establish negotiating leverage.

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No one from Apple accepts, either they know the loophole or ignorant of this, but it is well known secret, lot of times discussed at capitol hill. Not only by apple, but by many big companies do.

Do not say this news is BS. see “The 358 companies on the list have 7,622 tax haven subsidiaries between them in countries like Switzerland, Luxembourg, Singapore and the Bahamas, while much of Apple’s are in Ireland.”

Recent times, Facebook and Amazon is also there. IRS grills everyone and every year. You will have 100s of articles in the public threads and it is correct.

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Apple talks about how much of their sales are outside the US. I think it was 64% last quarter.

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Apple only pays 1% to 0.005% corporate tax in Ireland.

If Trump can reduce corporate tax to 15%, US will become the magnet of jobs. Everyone can have 2 jobs then :joy:

"Apple tax ruling controversy of 2016 Edit

There is an ongoing dispute between the European Commission, the Government of Ireland and the Irish branch of Apple Sales International, a subsidiary of Apple Inc.). The European Commission found out that because of two tax rulings granted by the Irish government, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International. The European Commission declared those rulings illegal State aid and ordered to Government of Ireland to recover from Apple €13 billion, plus interest as unpaid taxes. [7]
The Government of Ireland appealed against the decision and as of December 2016 the case is still open."

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Shrewd. I say 1), you say 2). 2) was not meant to be in the quote, doing it too fast. Response is meant for 1) only.

How does 2) in Ireland results in moving jobs to China in Apple case?

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Even if we reduce corporate tax rate to 0%, we will still lose some jobs to China, but we will gain many other jobs from the whole world. We can have all the businesses that will provide jobs Americans are more interested. There is probably little chance to attract low end jobs, but we can attract middle level and high end jobs.

We do not have to target China for jobs, we should focus on creating jobs and be color blind in terms of who we will compete with. That’s the politically correct way anyway.

When we target a specific country, it could be discrimination. But when we compete with the whole world. we have no discrimination issue :grin:

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I am all pro business, if the business help employees. Cutting taxes, whatever, same old same old son.

We are in a disadvantage when it comes to manufacturing. And, nobody is guilty entirely but all of us who enjoyed and benefited from cheap manufactured crap made in China and everywhere else. We gave up that beautiful slogan of Made in the USA. People, as I remember, would kill for anything made here. Nowadays, you can put a stamp on any crap, be this Trump’s clothing, Ivanka’s crap, but nothing is there to resemble of the old good days when we would love to show to our friends anything mande in the US.

I remember back in my country of origin, I got the first Nike shoes ever in town. They would kill me to get those shoes out of my feet, thanks to God I was well known so people would respect me. I am telling you, Made in the USA had a meaning, a meaning of something made good and with pride. And it had a hefty price, and we would pay for it no matter what. Made in China has made this so artificial, so repetitive, so out of touch, so crappy.

We are dependent of the world. We gave up that brand I was talking about. People wouldn’t buy it if it had Made in the US when they know it’s made in China or Indonesia. Too late, no way you can bring the prestige of manufacturing, that calls for retraining and research and development and we all know the world out there has a leverage against us, and that is cheap labor. Without it, good luck competing in this world.

Unless you want the government subsidizing production, which brings us to be like China. And that’s not good dear comrade.

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Long ago, made in USA means well built and long lasting at reasonable price. Now, it means very expensive and not much better. Global manufacturers make according to the spec laid out by American companies. If the spec is crap, the manufactured product is crap. If the spec is outstanding, the product is well built e.g. iPhone is made in China, very well built. MacBook Pro is made in China and somewhere else too, is well built… many brands of notebooks are made in the same factories in China is crap… is all in the spec (and of course, QC).

Want another example? Car. Japanese cars are better built and more reliable than GM cars.

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How do reducing corporate tax rate increases jobs in USA. What kind of jobs do we want to increase?

Do we even need to attract middle level and high end jobs? Hi-tech companies in USA generates tons of well-paid hi-tech jobs e.g. Software engineers. Are there enough Americans to take up those jobs? IMHO, the issue is those in the flyover states especially in the midwest are not happy that they do not share in the prosperity of coastal states. Do you seriously think they want those outsourced lowly paid manufacturing jobs back?

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This piece seems relevant:

https://www.bloomberg.com/news/articles/2017-02-15/from-made-in-china-to-made-by-china-for-china

China is getting less and less dependent on exports. And the whole economy is transforming into service oriented.

China remains the biggest manufacturer on the planet, but most of what it makes stays at home and the vast majority of what it consumes is made there, too.

These twin facts could confound any Donald Trump-led trade assault, according to Diana Choyleva, London-based chief economist at Enodo Economics.

Of course, China remains deeply knitted into the global supply chain. “But the bulk of the value added is actually destined for China’s domestic market rather than abroad,” Choyleva wrote in a recent note.

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