The border adjustment tax is premised on the notion that, first of all, you can impose a tax on imports but not apply it to domestic sales. That's why it's quite a bit different from Canada's value-added tax, the GST, or different from provincial sales taxes or state-level sales taxes. The border adjustment tax just targets products that are coming in. Any consumers who are dependent on a higher level of imported products—think Costco, Walmart, and Dollar Tree—are going to be most affected by a potential 20% increase in prices. Also, with the threatened increase on prices of gasoline, a border adjustment tax is going to hurt considerably those with a long commute, a minimum wage job, and an inefficient vehicle.
The success of the border adjustment tax is premised on the idea that it's going to adjust exchange rates by increasing the value of the U.S. dollar. I think that number is 20% as well. In the United States even 1% is a big deal and causes a lot of volatility. I don't know what a 20% change would do. I'm not a monetary policy specialist, but I do know there are lots of things that impact exchange rates. A one-for-one correlation between this tax and that exchange rate change is quite difficult to make. All sorts of other things affect exchange rates, as well, such as global activities, business activities, and currency speculation. The basic premise of that tax is that the exchange rate is going to rise as they predict, and I don't think they can make that prediction.
This being said, I have been receiving inquiries from moderate folks in the Republican Party who are saying, “Okay, if this doesn't work, tell me again how the GST works. Tell me how you do it in Canada. How do you manage to have a value-added tax as a revenue fundraising mechanism? How do you provide a credit if you import a product, add some value to it, and then export it? Tell me how you make that neutral.” So they are looking at other models, too, as a fundraising mechanism.
This is so complicated. Can you imagine small and medium-sized businesses trying to administer all the paperwork required to get the benefits for a border adjustment tax? We know in Canada that SMEs are reluctant to even manage the extra paperwork to get a NAFTA credit or a trade agreement with Costa Rica credit. They tend to default to the WTO level because the paperwork is easy. I don't see how U.S. small and medium-sized enterprises could benefit from this border adjustment tax. Again, this is just my opinion, but that's what I see.