The Tax Increase Nobody’s Discussing

By Dave Smith, Contributor, US Daily Review.

Whether it’s President Obama’s “blue ribbon” Bowles-Simpson Commission, the President’s “Buffett Rule” proposal, Congressman Paul Ryan’s budget plan and tax reform proposal, any of the myriad of tax reform plans offered by the various GOP Presidential contenders, or the oft-discussed “Taxageddon” that’s coming when the “Bush tax cuts” and payroll tax holidays expire at the end of 2012, there’s been plenty of talk about taxes.  But there’s a set of taxes that are also set to go up at the close of the year that haven’t been included in the tax conversation.  They should, because they will impact American businesses, including prices on many goods and services, as well as hiring, jobs, and economic growth.

Starting on May 16, the House of Representatives began consideration of reauthorizing the Miscellaneous Tariff Bill (MTB).  According to the official House “MTB Procedures”, the purpose of MTB legislation is to “temporarily reduce or suspend tariffs on certain imported products” – that is, products considered “inputs” for American manufacturing and other enterprises.  Rather than favoring one industry over another, the tariff relief is structured such that any American producer gets relief from the import taxes.  Materials to be considered for inclusion are nominated by members of Congress during a notice period, and then vetted by Congress, the US International Trade Commission, and the Executive Branch according the defined criteria.

The benefits of tariff relief are many.  Removing artificial, government-imposed costs on raw materials reduces manufacturing costs for domestic producers and thus making the products more competitive on the international market.  Removing these taxes also means lower prices for consumers and larger profits for manufacturers:  rather than circulating money through the government coffers, it stays in the marketplace where it belongs.

Renewal of the MTB has bipartisan support – in 2010, the MTB legislation passed the House 378-43 and the Senate unanimously.  The influential Americans for Tax Reform, headed by low-tax kingpin Grover Norquist, has issued its support for MTB extension, as has the National Association of Manufacturers, who claim that failure to extend MTB “will add to the 20 percent cost differential to manufacture in the United States and result in the loss of important manufacturing jobs.”  Sixty-five freshman Republicans elected in the Tea Party wave of 2010, including Tea Party favorites such as Allen West, Tim Scott, Nan Hayworth, and Renee Elmers, wrote a letter advocating its passage based on the claim that the tax relief program “has been estimated to support 90,000 American jobs, increase US production by $4.6 billion, and expand US GDP by $3.5 billion.”

But if one accepts the premise behind extension of MTB — that reducing government taxes on goods and services expand domestic economic output, create jobs, and reduce the cost of goods and services for consumers – why not provide an across-the-board, comprehensive reduction in all import tariffs?  The Harmonized Tariff Schedule of the United States is a 116-page document.  Why not have a simpler, less complicated tax schedule that can then provide a lower rate on all imported goods and services?  At the very least, Congress should remove the current $500,000 limit on tariffs to be included in the MTB, as advocated by free market trade researchers like Daniel Griswold of the Cato Institute.

The entirety of federal excise taxes – including but not limited to tariffs — will account for only 3% of federal revenue collected in the US 2012 federal budget.  That means there’s plenty of room to reform, streamline, and reduce import tariffs without starving the government of tax revenue; the additional growth in jobs and economic output would certainly be considerable, if only accepting the assumptions that MTB advocates themselves cite.  For true supporters of limited government and free markets, broad-based tariff reform should be the ultimate goal.  In the meantime, Congress should avoid shackling the economy with yet another burdensome tax and pass the Miscellaneous Tariff Bill and avoid the tax increases that nobody’s discussing.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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