Does the United States tax exports?

Question

So the Trump administration has floated the idea of a 20% tariff on Mexican imports. Part of the Justification for this, was Sean Spicer's statement that (Emphasis mine)

"Our country's policy is to tax exports and let imports flow freely in, which is ridiculous. But by doing it that way we can do $10 billion a year and easily pay for the wall. Just through that mechanism alone,"^[1]

Per Article 1 Section 9 of the constitution

No Tax or Duty shall be laid on Articles exported from any State.^[2]

Does that clause not apply to exports outside of the United States as opposed to interstate trade (ex: KS wheat exported to Colorado)?

Answer 1

The United States taxes global income (as opposed to territorial income as in most countries). So the income of the export is taxed in the US when it is repatriated to the US. Some companies leave their foreign revenues overseas in order to avoid that taxation.

Note that it is the income that is taxed, not the export. Income is taxable no matter the source, as per the sixteenth amendment.

Answer 2

I don't know what Spicer is going on about here, maybe on repatriation of earnings. But's it's sloppy. The US cannot tax an export, as you stated the Constitution states

All exports are by definition outside of the US.

Answer 3

In Article 1 Section 8,the word Export refers to international sale of goods. Not interstate. Sale across state lines is not export. The clause was specifically added because Virginia, which was still shipping tobacco to Britain, was considering not signing the constitution..... Now for the real question.... Which exports are being taxed?

Answer 4

The US states typically apply a sales tax or 'use tax' to components which are not consumed in exports. As such, exports will contain some small component which consists of, say, the sales tax paid on a computer amortized over 4 years or the paper folders used in record keeping.

This is the distortion that a VAT (a consumption tax) eliminates, by allowing that tax to be backed out of exports since the final consumer pays the tax and not exports. Imports and domestic products are thus on a level playing field (if the VAT is 10%, the import gets taxed 10% at retail and so does the domestic product). See, for example, this Forbes article debunking Trump's claims that VAT is in any way unfair. It also allows governments to crank up or down the tax extraction knob without unduly affecting trade, which is perhaps a legitimate objection- that it makes it easy to increase taxes. Another criticism, typically from the other side politically, is that it is a regressive tax- usually a flat percentage of consumption.

The amount of state tax in such exports is pretty small but probably not negligible. In Canada, prior to introduction of the VAT (called GST) there was a hidden 12% (usually) federal manufacturer's sales tax that caused a relatively large distortion in favor of imports, but thankfully that is long gone, and in many provinces the provincial sales tax has been combined into a single visible tax at consumption for most products.

The US has no federal sales tax and it is probably virtually impossible to imagine all 50 states agreeing on a harmonized federal-state tax system, so implementing a VAT is difficult in the US, but perhaps not impossible.

There appears to be a current and very deliberate attempt to obfuscate what a VAT actually does (create a level field and back out taxes from exports, allowing recipient countries to impose their own taxes at consumption) and conflate it with protectionist measures such as straightforward tariffs or the proposed complex "border adjustability" tax, the latter explicitly prohibited under WTO rules precisely because it is not a level playing field (imports are taxed and exports are subsidized).

Some countries, in particular those with internal subsidies or currencies that are not fully convertible do tax and/or apply quotas to exports but I'm not aware of any commodities that are treated that way in the US.

Answer 5

IIRC, military exports are often taxed. The rationale is that the US Army paid for the initial development, and the government should recoup some of those R&D costs when other countries benefit.