The Trump administration floated a 20 percent tax on imports from Mexico to pay for a wall along the southern U.S. border, a plan revealed hours after Mexican President President Enrique Pena Nieto canceled a meeting with Trump.
Spicer spoke to reporters aboard Air Force One as President Donald Trump returned from a speech to a congressional Republican retreat in Philadelphia on Thursday. Spicer didn’t explain how such a tax would work or how it would affect U.S. consumers and companies. Asked if the tax could be applied to other countries, Spicer said the administration is “focused on Mexico right now.”
Later, Spicer summoned reporters to his office and said the tax was only one idea to finance the wall, and that its economic impact would have to be examined.
The conflict between Trump and Mexico escalated over a 24-hour period after Trump signed a directive Wednesday to initiate the process of building the border wall. Trump’s border plan rapidly exploded into a showdown that threatens one of the world’s biggest bilateral trading relationships.
The cross-border sparring prompted a drop in the Mexican peso, which fell 0.7 percent to trade at 21.2149 per U.S. dollar following Pena Nieto’s announcement. Mexico’s currency has plunged almost 14 percent since Trump’s election on concern that Trump will renegotiate or scrap the North American Free Trade Agreement.
After Pena Nieto said in an address Wednesday that his country would refuse to pay for a barrier on the U.S. southern border, Trump blasted him with a tweet Thursday morning. “If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting,” Trump wrote.
Pena Nieto, who was to meet with Trump Jan. 31, responded a few hours later with his own tweet: “This morning we’ve informed the White House that I won’t attend the working meeting scheduled for next Tuesday with @Potus.”
The border tax Trump floated wouldn’t directly be imposed on Mexico but added to the cost of products as they crossed the border, translating into either lower profits for companies that import goods such as Ford Motor Co., Wal-Mart Stores Inc., Target Corp.or higher prices for U.S. consumers who buy the products.
“Mexico doesn’t pay for the wall,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “American consumers who shop at places that import, like Walmart and Target, pay for the wall, making it a regressive tax supporting a dumb, wasteful idea.”
Spicer’s comments appeared to move the president closer to embracing a “border adjusted” tax approach that House Republicans favor, Bernstein said.
That plan would radically remake the U.S. corporate tax system to apply a 20 percent tax rate to companies’ domestic sales and imports, while not taxing their exports. It would apply to all imports, not just those from Mexico, and would generate roughly $1.1 trillion in revenue over a decade, according to an analysis by the conservative Tax Foundation.
Currently, the U.S. taxes its corporations’ worldwide income at a 35 percent rate — though they can use foreign tax credits to reduce that amount, and companies don’t have to pay any U.S. tax on overseas income until they bring it to the U.S.
The border tax Trump floated would be a clear violation of Nafta, which allows the duty-free movement of goods between Mexico, the U.S. and Canada, though Trump already has said he will demand a renegotiation of the deal or withdraw.
Under existing treaties, Trump could impose 15 percent duties for 100 days on Mexican imports, claiming a “balance payments emergency,” but that would fall short of the punishment he’s threatened. Other fines, such as anti-dumping duties, require special and lengthy procedures to enact. For his tariff to stick, Trump would likely have to ask Congress to include it in a broader overhaul of the U.S. tax code.House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell both suggested Thursday that, after months of studiously ignoring the border wall proposal, they’re now ready to act on the wall as part of a spending request they expect from Trump that would help jump-start construction.
The two leaders said they’re ready to spend as much as $15 billion from the federal treasury to build the wall.