by: Marky Kate Hopkins and Alan Nguyen
“Farming looks mighty easy when your plow is a pencil, and you’re a thousand miles from the corn field,” President Dwight Eisenhower said in 1956. Six decades later, and Washington’s penchant for ill-formed policies that become painful reality for American farmers hasn’t disappeared. The latest example is the proposed border adjustment tax that is part of a tax reform plan advanced by Republicans in the U.S. House of Representatives.
The crushing proposal “effectively slaps a 20 percent tax on everything that companies import into the United States,” explains a new report by our organizations, Freedom Partners Chamber of Commerce (FPCC) and Americans for Prosperity (AFP), that examined the tax’s impact on American industries.
According to the report, the import tax would “cause tax bills to skyrocket for businesses that rely heavily on imported goods and would hurt ordinary Americans.” Export-oriented industries like agriculture, the report said, would face additional threats.
Trading partners angered by a 20 percent U.S. import tax could retaliate by imposing hefty tariffs of their own on American exports. If it also causes “countries like China and Mexico to buy their ag commodities from other countries, that would be negative for U.S. farmers that do a lot of exporting to China, Canada, and Mexico,” Samuel Allen, the CEO of Deere & Co., said in March.
Unfriendly markets abroad wouldn’t be the only headache. American agriculture would also contend with higher production costs at home.
Fuel prices would shoot up, which is bad news for an industry the U.S. Department of Agriculture describes as “sensitive to changes in energy prices.”
To meet our energy needs last year, US refiners imported $100 billion in crude oil. A 20 percent tax on every barrel of crude that crosses our borders could raise gas prices by as much as 40 cents a gallon according to some estimates.
Farmers also depend on imported intermediate goods like fertilizer and chemicals. When combined with fuel, these categories of goods represent more than half of the operating costs for most major crops. Then, there are tools and heavy machinery that would also increase in price. In 2015, the agriculture industry imported $21.4 billion in all intermediate goods.
The tax’s defenders say American businesses and consumers won’t feel a thing because the dollar will strengthen and thereby offset the increased cost of imports. “This is a theory wrapped in speculation inside a guess,” Arkansas Senator Tom Cotton said. He’s right. A policy like the House-proposed border adjustment tax has never been tried or proven in the real world. Leading economists say “not much evidence supports the notion,” and “it is unlikely that nominal or even real exchange rates would in fact adjust so quickly and perfectly.”
Even if the fairytale came true, a stronger dollar would present its own challenges for farmers selling their goods on overseas markets.
Swapping old burdens out for new ones isn’t reform.
Republicans promised to grow our economy and make our tax code simpler and fairer so Americans could keep more of their hard-earned money. A plan that includes the border adjustment tax sure isn’t going to get us there.
Mary Kate Hopkins is the deputy director of federal affairs at Americans for Prosperity. Alan Nguyen is the senior policy adviser for Freedom Partners.