7 Things To Know About President Trump's Threatened Mexico Tax

The White House and Republican lawmakers are considering instituting a new 20 percent import tax as part of a strategy to pay for the president's border wall with Mexico.

But initial reports did not make clear exactly what form the import tax would take. Many reporters interpreted Press Secretary Sean Spicer's comments as the endorsement of a tariff, which economists generally dislike. This led to extensive speculation that the prices of Mexican imports — such as avocados, tomatoes and car parts — would spike.

It now seems Spicer is talking about a more obscure and nuanced trade idea, called border adjustment, or destination-based cash flow tax, as part of a broad GOP tax reform agenda.

Here's what we know so far:

1. The plan is not yet set in stone

After multiple and conflicting reports, Spicer spoke to reporters again to clarify that the plan he described earlier was still a work in progress.

"There's nothing to roll out, so the idea of asking for the details on something, we're not there yet," he said. "It could be multiple things. Instead of 20 percent, it could be 18, it could be 5."

2. It may not be a tariff at all

Imposing a tariff would be highly controversial and could result in a trade war, so the story quickly took off. It would also amount to passing off the costs of the wall on to American consumers, which would betray President Trump's campaign promise to make Mexico pay for the wall.

But further clarifications suggested that the tax on imports Spicer was referring to is more likely a shifting of the tax burden on American companies. Right now, American companies can deduct the cost of products that they produce abroad, and they deduct the profits made from products they export. The GOP's reform plan is to turn this dynamic on its head.

3. Trump recently opposed border adjustment, calling it "too complicated"

“Anytime I hear border adjustment, I don’t love it,” Trump said in an interview with the Wall Street Journal. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”

If it's true that Trump is now considering it, someone must have convinced him otherwise.

4. Republicans really like the plan

As Dylan Matthews at Vox points out, congressional Republicans really like the idea of border adjustment.

"They wanted a way to tap into the anti-trade message of the Trump campaign, which appears to have resonated with voters in de-industrialized upper-Midwest states which blame free trade for eliminating good manufacturing jobs," Matthews writes. "Border adjustment offers them something that looks like a Trump-friendly tariff but free-market Republicans feel comfortable embracing it because most economists don’t think, at the end of the day, that it will boost exports and discourage imports at all."

5. It's had bipartisan support and opposition from businesses

As a relatively obscure and complex proposal, border adjustment doesn't really split opinion along typical party lines. While Republicans are currently pushing the proposal, relatively liberal organizations like The Century Foundation and the Center for American Progress have featured work promoting similar plans, as Matthews pointed out.

Some big businesses, on the other hand, are very wary of border adjustment. According to Forbes, Walmart, Target and Koch Industries Inc. all opposed it.

6. It could help reduce tax evasion

"Profits sitting overseas need to be repatriated back to the United States after years spent in tax havens like the Cayman Islands and Ireland," wrote Reuven Avi-Yonah for the Century Foundation in November. "Tax revenues from foreign profits could fund a variety of programs, including infrastructure."

Proponents argue that border adjustment would prevent this kind of tax evasion. Because foreign profits currently aren't taxed by the U.S. government, many companies keep their money overseas to avoid paying out money to the government.

Border adjustment would change all that, so companies would have no reason to keep money outside the country. Republicans would likely use this change to reduce the overall corporate tax rate.

7. Economists think it won't raise the price of avocados

Initial reactions to the proposal of an import tax made many people worry that Mexican products, like avocados and tomatoes, would shoot up in price. But if the plan turns out to be border adjustment and not a tariff, the price will likely not fall on consumers, according to some analyses.

The Wall Street Journal, citing American Enterprise Institute scholar Alan Viard, explained that a border adjustment effectively raises money for the government presently that it has to pay back over the long term. This makes the plan the economic equivalent of the country borrowing more from foreign investors in the short term, Viard said.

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