‘Border adjustments’: Key to reform or a complicated euphemism?

Like other fields of human activity, tax law has its own specialized vocabulary. Sometimes the words used have very particularized meanings that require some explanation to make sense.

Consider the term “border adjustments.”

The term is in play because the U.S. House of Representatives is considering a plan that would, in essence, tax imports of goods but not exports. House Speaker Paul Ryan, R-Wisconsin, defended the idea of corporate tax reform on the Charlie Rose talk show this week.

Ryan has a reputation as a straight shooter. But calling a tax that would be imposed on imports a “border adjustment” could easily be seen as an exercise in euphemistic language, trying to dance around a certain three-letter Anglo-Saxon word: tax.

President Trump said as much a few days before his inauguration. In a published interview, he complained to the Wall Street Journal that border adjustments are excessively complicated.

The issue of changing how the U.S. taxes imports and exports is of course of great concern to the business community, both in Texas and across the country. Business groups that have expressed opposition to imposing more taxes on imports include retailers and oil refiners.

On Charlie Rose, Speaker Ryan defended the idea of revamping the U.S. corporate tax system. He asserts that the U.S. taxes companies too much, compared to the rest of the world, resulting in incentives for companies to keep cash overseas that could be invested in the U.S.

The Obama administration attempted to address cross-border tax issues with complicated rules on intercompany transactions. As we noted in our November 12 post, those rules are likely to change in the new administration.