Trump’s Spokesman Reveals ‘easy way’ to Make Mexico Pay for the Wall
By Max Ehrenfreund, Washington Post
All Sean Spicer wanted to do was explain to reporters why it wouldn’t be all that hard to get Mexico to pay for President Trump’s wall along the southern border.
“There have been questions about how the president could pay for the wall,” the White House press secretary said Thursday. “We’ve been asked over and over again, ‘How could you possibly do this? There’s no way that Mexico will pay for it.’ Here’s one way. Boom. Done.”
It turns out, though, that the plan Spicer suggested is the economic equivalent of the U.S. government borrowing more money. Future generations of Americans would in effect be footing the bill, not Mexico.
“It really is a form of borrowing, disguised borrowing, by the government,” said Alan Viard, an economist at the conservative American Enterprise Institute.
In trying to come up with what he called “an easy way” for Mexico to pay, Spicer might have inadvertently demonstrated the point that analysts, commentators and pundits have been making for months. There really is no obvious way for Trump to force Mexico to pay the tens of billions of dollars a wall along the border would likely cost.
Spicer’s confusion is understandable, though. The plan he was referring to is a complex proposal from Republicans in the House for a new kind of tax that does appear, at least superficially, to yield more money for the federal government. Here’s how it would work.
The GOP plan
The plan is part of a GOP proposal for reforming corporate taxes, which would subsidize exports while levying a new tax on imports.
Currently, corporations pay taxes on their profits — that is, their sales less the costs of doing business. Under the Republican plan, corporations would not have to include sales from any exports in calculating that income. Profits on exports would be completely free of taxation.
Meanwhile, firms that import goods or services from abroad would not be able to count the costs of those exports against their overall profits. In effect, corporations would be paying taxes on the value of anything they buy from abroad.
Republicans have suggested that this kind of system, known as a border adjustment, would be a boon for U.S. producers who compete with goods and services from overseas, although there is disagreement among economists about whether the system would really accomplish that goal.
Another reason for introducing a border adjustment is that in the short term at least, the scheme would generate a lot of money for the U.S. government. Since the United States imports more than it exports at the moment, the new taxes on imports would more than make up for the big break on exports. The plan would yield about $1.2 trillion over 10 years, according to the nonpartisan Tax Policy Center.
That is the money that Spicer thinks could be used for building a wall along the border with Mexico. To be exact, Spicer suggested that the share of that money generated through trade with Mexico, which he said would be about $10 billion a year, would be dedicated to the wall.
The catch
Republicans cannot just spend that money free and clear, though. In the long term, a border adjustment does not make money for the federal government. Any cash the system yields in the short term from taxes on importers will be canceled out by future subsidies to exporters.
The United States probably will not go on importing more than it exports forever, as Viard explained. Right now, the United States is essentially borrowing from foreign countries, as Americans spend more on foreign goods and services than they take in through exports to the rest of the world. The I.O.U.’s take the form of hoards of U.S. dollars overseas, which foreigners are accumulating as Americans buy foreign currencies to make those purchases from abroad.
Eventually, foreign investors might want to cash in those I.O.U.’s, bringing those dollars back to the United States to buy goods and services made by Americans. When they do, the border adjustment will force the government to start paying out that subsidy to the exporters who serve those foreign customers.
It could be decades before the United States begins consistently exporting more than it imports again. All the same, the money the border adjustment yields this decade is, in principle, money that has to be paid back. If Trump uses it to build a wall along the Mexican border, he will effectively be doing so with borrowed cash. The effect on future taxpayers will be the same as if Trump borrowed the money for the wall outright, adding to the official tally of the national debt.
Your Editor Muses: Una cosa piensa el borracho y otra…..
