Phil Gramm is Woefully Wrong on the Border Adjustment Tax
Still His Approach Today
I have long liked former Texas Congressman, Senator and presidential candidate Phil Gramm. I in fact voted for him in the 1996 Republican presidential primary. The one time I got to meet him - years thereafter, at a UBS event (with whom he’d landed a post-politics gig) - I told him I had cast a presidential ballot for him. His response was a deadpan “That was you?”
Gramm received my 1996 vote - in part because of a move he made in 1983. Then a conservative Democrat Congressman, Gramm had been just about excommunicated from the Donkey Party for working on budget issues with Republican President Ronald Reagan. So he announced he would switch Parties - and that he would resign his seat to do it. Having been elected as a Democrat, he felt it dishonest to make the change without again facing the voters. His voters re-ensconced him in a special election.
Gramm called his move: “(T)he only honorable course.” He described his situation thus: “My crime was that I dared to practice in Washington what I preached here at home….That I should be punished for representing the people who sent me to Washington is unfair.”
So it is more than a mite disappointing to see where Gramm is now. In the 2015 movie “Our Brand Is Crisis,” there was an exchange between an interviewer and Sandra Bullock’s main character - a political consultant:
“Interviewer: ‘When you began your career, you must've had heroes, role models?’
“Jane: ‘Who are my heroes? Well, when I first started in this business, my heroes were politicians and leaders. And then I met them.’”
Or learned more about them. But really, Gramm is the man who switched Parties and resigned his seat for having the audacity to represent the people who sent him to Washington. He’s still doing exactly that today - so I guess it can’t be held against him.
Thirty years ago, the people he represented - was us. Specifically the blue collar, working class members of his Texas district. The people sending him to Washington today - stand opposed to blue collar, working class Americans.
At issue is the Border Adjustment Tax (BAT). Which is a brilliant tax reform proposal currently under consideration in Congress.
For at least the last thirty years, our tax code has uber-stupidly, punitively taxed companies that manufacture here - and export to the rest of the world. While not taxing at all companies that manufacture anywhere else on the planet - and export here.
Most people who run most companies - aren’t stupid. So they have been doing what the tax code has been telling them to do - getting the heck out of America. And taking with them millions of jobs for the blue collar, working class Americans - that Gramm used to represent.
BAT undoes this government uber-stupidity: “(T)his system would not tax the exports of American companies, but would tax the gross value of any imports into the country. The new rate of tax on corporations is expected to be 20 percent, so that would also be the de facto rate of tax on imports.
“U.S. companies would immediately be on equal footing with their international competitors, the great majority of whom benefit from territorial taxation and border adjustability today. American firms would be further advantaged by tax reform’s low 20 percent tax rate on corporations (down from a global high 35 percent today), and full business expensing of asset purchases (replacing multi-year depreciation deductions).
“Instead of taxing exports and not imports, we’d be taxing imports and not exports. Instead of reading about corporate inversions and outsourcing, we’d be reading about jobs and firms moving into the U.S. to take advantage of the favorable tax rules here.”
Gramm…opposes the BAT. He wrote a Wall Street Journal editorial saying so. And before writing publicly - he met privately with Republican Senators to express his opposition. And with Donald Trump Treasury Secretary Steve Mnuchin - also to bash the BAT. When asked about that meeting, Gramm coyly responded: “I don’t kiss and tell.”
All of this Gramm full court press raises a question: Who are “the people who sent (him) to Washington” to do this? Meet his current employer: “Gramm failed to mention that one such victim of the tax change could be his own employer: a private equity firm, Lone Star Funds, whose extensive overseas holdings stand to suffer….Gramm…said he is a vice chairman of the firm, working mostly in Europe and Asia.”
Get that? “(M)ostly in Europe and Asia.” Two entire continents to which companies can escape from America and set up shop, and from which export products to America - and pay zero taxes. An America Last, Made-in-America-Tax escape hatch - which the BAT will close.
Who heads up the Lone Star Fund? Meet John Grayken: “John Grayken has quietly become the world’s second-richest private equity billionaire, diligently avoided publicity and keeping very private.”
Not exactly the blue collar, working class type Gramm once represented. And Grayken personally practices what his $70 billion business preaches: “He renounced his U.S. citizenship many years ago and became an Irish citizen for tax reasons.”
Again, I completely understand why Grayken and his $70 billion business got the heck out from under America’s ridiculous tax code. I understand why - having set up his gi-normous company to best take advantage of the current stupid tax code - he doesn’t want to see it changed.
I can even understand why Gramm is doing what he’s doing. He’s simply “representing the people who sent me to Washington.” Or one very, very rich person.
But government policy is supposed to do the most good for the most people. It’s why Obamacare has to go. You can’t ruin health insurance for 200+ million people - to give crappy government insurance to 11 million people.
And it’s why the current tax code needs to go - and the BAT be a part of what comes next. Continuing to hemorrhage millions of blue collar, working class jobs - to keep Gramm and his $70 billion paymaster happy - is an upside-down, egregiously bad approach to government policy.
It is high time DC stop this absurd cronyism. Sacrificing the very many - to benefit the uber-wealthy uber-few.
The BAT is a huge step in this correct direction.
This first appeared in Red State.