The Ryan-Smoot-Hawley Tax Plan

The Week Ahead

February 6, 2017

Speaker Ryan, meet Representative Smoot and Senator Hawley. Imbedded in your tax reform proposal is a so-called “border adjustment” that is eerily reminiscent of the Smoot-Hawley Tariff enacted in 1930, one that penalizes imports with a 20% tax hit that perfectly matches the peak average tariff under Smoot-Hawley. Although far from a done deal, that’s enough to worry Canadian businesses and delay capital spending decisions here. Under the Ryan plan, US companies would pay a 20% corporate tax on domestic revenues less goods and services (including capital goods) purchased domestically, with no deduction for interest or imported goods and services, and no tax on exports. Canadian companies exporting to the US, having already paid Canadian corporate income tax on their export profits, would in effect be hit again as a US corporate tax would be paid by firms or consumers buying their products.

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