Following the failed attempt to repeal the Affordable Care Act – otherwise known as Obamacare –President Trump  indicated that he plans to  turn his attention next to tax reform. A considerable amount has been written regarding a proposed border tax, or “border adjustment tax.” A lot confusion exists around the notion of a border tax because at various times President Trump has used the term in a manner different from what is intended by many in Congress. President Trump has used the term “border tax” to refer to what is commonly known as a tariff on imported goods. In order to penalize U.S. companies that outsource much of their supply chains outside the United States, the president has threatened to impose a 20 percent tax on all imported goods.

The border tax that is under consideration by many of the Republicans in Congress is a more complex concept that has never been tried. Under this version of the border tax, export sales made by U.S. companies would simply not be subject to taxation. On the other hand, if a company imports goods or parts to use in its finished product, the cost of those  imported goods would no longer be allowed as a deduction as part of the company’s cost of goods sold. The intent of this  provision is to encourage multinational companies to manufacture their products within the United States, using U.S. goods and raw materials. At the time of this writing, these provisions are still being drafted, and we will keep you apprised of further developments regarding the border tax and any other tax reform measures. It is far from clear whether Congress will be able to agree on a package of comprehensive tax reforms, but if it does, the changes to the tax law may be substantial and lasting.