Trump’s Plan to Shift to Territorial Tax System Will Make America Great Again

Steve Sherman
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Posted: Feb 15, 2017 12:01 AM
Trump’s Plan to Shift to Territorial Tax System Will Make America Great Again

It’s been a whirlwind of action since President Donald Trump took his seat in the oval office. 

Love him or hate him, he has turned the much-derided executive order on its head. Signing orders at a breakneck pace and with the stroke of a pen, he has fulfilled many of his campaign promises.

Some of the larger promises are much more complicated. Fixing our economy through tax reform and bringing jobs home from overseas were hallmarks of many a Trump campaign speech. Now, it is time to get it done. 

House Republicans, led by Speaker Paul Ryan (R-WI), with the support of President Trump, have declared war on the tax code. The last time comprehensive tax reform was undertaken, I was a teenager and Ronald Reagan was president. Tax reform is long overdue.

House Republicans have come up with a pro-growth “Better Way” plan that reduces taxes across the board. It calls for simplification of the entire tax code and contains several pro-growth policies to kick start the economy. The two most talked about items within the blueprint are a switch to a cash-flow business tax model that uses full expensing, and a territorial system for international taxation called border adjustability.

The Border Adjustment Tax, or BAT, is a way to stop economy-slowing tariffs or a value-added tax (VAT). The BAT is estimated to bring in a trillion dollars over 10 years and that would become a way to pay for a massive reduction in corporate and personal tax rates. A BAT would also put a cap on the demand for tariffs. 

The BAT is a viable option to dramatically improve our business climate by shifting the tax system to a territorial system.  It will also prevent a trade war with the issuance of new tariffs. Basically, the BAT is a new system that allows the costs associated with products exported from the U.S. to be fully deductible in the cash flow model, while costs associated with imports are not deductible. It essentially evens the playing field between nations without favoring one or the other or becoming overly isolationist. Currently, America is the only nation in the 35-nation member trade group called the Organization for Economic Co-operation and Development (OECD) that does not have something like a BAT. It’s time that we were brought up to speed with what the rest of the world already knows.

The Better Way plan utilizes across the board tax cuts combined with a new system of accounting leading with the BAT to literally light our economy on fire. Stand back and watch it burn. Businesses will flourish, people will spend money and save even more. Corporate tax rates would go to 20 percent and pass-through companies would be at 25 percent.

The BAT portion of the plan would actually protect American jobs and increase the competitiveness of our corporations. However, a group of large companies calling themselves the Americans for Affordable Products is lobbying against the BAT. These companies have largely moved their manufacturing interests overseas and are protecting that interest. Wal-Mart alone has sent 400,000 jobs overseas. Many other big names of industry are lining up against this change.

Will the titans of industry win the day and keep America’s middle class down? Or will we see the Trump Administration go down in history as the greatest reformers since Reagan? Time will tell, and it will likely be a brutal knock down battle with literally trillions of dollars and the future of our nation’s economic dominance at stake.

Now is the time to make the tough decisions. With Republicans in power in all three branches of government, there will never be a better time to implement the kind of change we need.

To actually make America great again, we need to rip the band aid off fast. I hope the politicians in power see the prime opportunity that is before them and take the big picture approach to America’s future. It’s time for us to seize the day.