The 20 Percent Tariff on Mexico That Wasn’t

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The price of Mexican Trump-piñatas will not be skyrocketing. Photo: Yuri Cortez/AFP/Getty Images

On Thursday afternoon, White House press secretary Sean Spicer was asked how the president planned to finance his monument to American xenophobia, now that Mexico had (once again) said not to put it on their tab.

Here was Spicer’s reply:

To the pool reporters gathered around Spicer — including representatives from the Associated Press and New York Times — it sounded like the press secretary was proposing a 20 percent tariff on all Mexican goods. That policy would be a radical break with bipartisan orthodoxy, and would very likely increase the price of fresh produce (among other things) for American consumers.

Considering that radical, bad-sounding ideas have been a hallmark of the Trump administration, the pool reporters didn’t hesitate to print their presumption.

And soon, certain bloggers were recycling those dispatches with a few dashes of snark.

But then Spicer pushed back – claiming that the 20 percent tax was only a “policy option,” not a policy proposal.

And then the actual transcript of Spicer’s remarks came out. And tax-policy analysts realized that Spicer almost certainly had not been describing a tariff at all. Rather, in his clumsy, layperson’s way, he was describing the official Republican tax plan — which would lower the corporate rate to 20 percent, and then apply that tax to the inputs that corporations import, while exempting the products they export, a policy known as “border adjustment.”

This is very different than a punitive tax on Mexican imports. It is a plan to shift the corporate tax system away from taxing production and towards taxing consumption. And since America consumes more than it produces, the proposal increases total revenue — making it one of the only genuine offsets within the GOP’s broader tax-slashing plan. In other words, Spicer was really just saying that Trump will pay for the wall with the part of the Republican tax plan that increases revenue. This isn’t a very good answer, since the revenue generated by border adjustment is already needed to offset the GOP’s other tax cuts. But it’s not a “so wild it’s newsworthy” answer.

Economists predict that border adjustment would not actually impact the trade deficit, as the tax break it gives to exporters would be immediately countered by a strengthened dollar. And the proposal is much less likely to raise consumer prices than a 20 percent tariff on Mexican goods.

The Trump White House has generated alarming, ill-explained proposals at such a steady clip, the fact that the press assumed the most sensational interpretation of Spicer’s remarks is understandable. But it’s unfortunate — because the end result was something that could be fairly described as “fake news.” We need to do better.

The 20 Percent Tariff on Mexico That Wasn’t