President Donald Trump is warming to a congressional Republican proposal that would replace the U.S. corporate income tax with a levy on companies’ imports and domestic sales, even though he had recently criticized the idea as too complicated, a senior administration official said.
The Republican proposal, which enjoys broad support among members of the party in the House of Representatives, is known as a border-adjusted tax. Exports would be exempt from U.S. taxes, under the plan, and proponents say it would discourage companies from moving their headquarters offshore.
Despite Trump’s prior reservations -- he told the Wall Street Journal on Jan. 13 that “I don’t love” the plan -- there is now broad agreement among senior administration officials that border adjustment is the best approach for a broad overhaul of the U.S. tax code.
The official described the proposal as the “most nationalist” way for the U.S. to tax its companies and said Trump was previously opposed only because he doesn’t like the word “adjustable.” He would prefer to simply call it a border tax, the official said.
Talk of a border tax has contributed to deteriorating relations between the U.S. and Mexico, pushing the countries closer to a trade war that threatens to spoil decades of friendship and economic cooperation. The feud grew increasingly hostile on Friday as Trump said in a Twitter posting that Mexico “has taken advantage of the U.S. for long enough” by not addressing trade deficits and security along the “very weak border.”
That tirade followed Mexican President Enrique Pena Nieto’s decision Thursday to scrap his trip to Washington after Trump said he’d follow through on campaign pledges to rewrite the North American Free Trade Agreement and charge Mexico to build a border wall. The Trump administration retaliated against Pena Nieto’s cancellation by floating the idea of imposing a 20 percent tax on all Mexican imports.
‘Bad Day’
“This is a very bad day for U.S.-Mexican relations -- the worst day in memory,” Michael Shifter, president of the Inter-American Dialogue in Washington, said on Thursday. “There is the real risk of things spiraling out of control.”
The Mexican peso plunged and the clash slowed gains in the U.S. stock market amid growing concern that one of the world’s largest trading relationships was headed for divorce.
For all of Trump’s complaints about Mexico, the two nations’ economies are deeply intertwined, especially in the border states -- so much so that it might be nearly impossible to pull them apart without serious political or economic unrest.
Cars, auto parts, farm goods, textiles and food all flow freely back and forth -- and any move to disrupt that could cause economic harm on both sides of the border, including in the Rust Belt industrial states that propelled Trump to the presidency.