On its face, the border adjustment tax, or BAT, appears to discourage imports and encourage exports, and thus to dovetail with President Trump’s antitrade rhetoric. There is, in fact, debate over its potential effect on trade, but that has not stopped Republican proponents from claiming that it would narrow the trade deficit while raising substantial revenue.
That might be the case in the near term, but not in the longer run, and therein lies a very big problem of the Republicans’ own making. Republicans are relying on a BAT to raise over $1 trillion in the next 10 years to be used for — what else? — compensating for big cuts in business and individual tax rates. Substantial BAT revenue is plausible in the near term because imports are currently far larger than exports; as a result, the BAT on imports would raise more revenue than would be lost by exempting exports from tax.
