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USA: "New Data Show Strong Labor Market for Scientists and Engineers". 8-page Newsbrief by the National Science Foundation.

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back to index backAMERItalk April,  2017


Border Adjustment Tax: Estimated Impact on U.S. Vehicle Prices

Overview

This analysis highlights the immediate impacts of implementing a border adjustment tax on U.S. vehicle prices.

- The border adjustment mechanism is being considered as an integral part of the major corporate tax reforms that are expected to be introduced in the 115th Congress.

- Border adjustment is being considered as a way to generate sufficient tax revenues to offset the impact of lowering the overall corporate tax rate.

- The border adjustment mechanism functions by excluding cash-inflow from overseas (export revenue) and cash-outflow to foreign countries (import costs) in the taxable profit calculation.

- Automakers and suppliers that sell and manufacture in the United States are part of a highly globally-integrated industry.

- The automotive industry would see significant changes to their tax base under a border adjustment; the tax would be highly disruptive to U.S. vehicle sales and production.

Methodology

- This analysis is based on confidential financial data received from automakers representing over 50 percent of U.S. light vehicle sales.

- This analysis holds exchange rates constant, and examines only a price response to the implementation of border adjustment.

- The estimates are based on the impact of the proposed border adjustment tax on imported vehicles as well as parts used for vehicle production in the United States.

- This analysis estimates a price increase with no change in unit sales or domestic production"both of which would be affected by a price increase of this magnitude.

Findings

In response to the border adjustment:

- U.S. light vehicle prices would increase 5.6 percent in immediate response to border adjustment.

- Since the current U.S. average transaction price for new vehicles is $34,968 (Kelley Blue Book, 2017),
average per vehicle price increases are estimated at $1,970.

- Assuming U.S. sales at 17.5 million vehicles in 2016, the light vehicle price increase represents $34.6 billion in higher costs to consumers.

- The $1,970 price increase resulting from the proposed border adjustment masks the turbulence and churn in the market which would significantly impact models, segments, and even entire companies.

This briefing was funded by a consortium including members of The Association of  Global Automakers and the American International Automobile Dealers Association.

Source: Center for Automotive Research - GAI



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