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Border Adjustment Tax will choke Arizona’s high-tech innovation

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Arizona is among the nation’s fastest growing technology hubs. The Arizona Technology Council has worked to connect and empower our high-technology companies to keep our state at the forefront of innovation. To maintain our competitive momentum, we need our lawmakers to ensure a legislative and regulatory landscape that helps foster business inspiration and growth.

Unfortunately, members of the U.S. House of Representatives in Washington are looking backward in their tax reform plan. Specifically, they are proposing a Border Adjustment Tax (BAT), which would impose a 20 percent tax on goods imported into the United States. This will have a ripple effect that will be felt throughout our economy, touching businesses of all sizes, impacting jobs and raising prices.

steve-zylstra

Steve Zylstra

Imports are a necessity in today’s global marketplace. In the technology space, companies rely on imported parts from processors to computer screens that can help them develop and offer the latest advancements in products and solutions to their customers. It’s worked well in our state as more than 2,500 jobs were added in Arizona’s technology sector in 2016 with the average annual salary around $98,000.

What will happen when these companies suddenly face a 20 percent increase in costs on some of the most critical needs for their business model? The math is not on our side. Few companies can absorb this type of hit. Instead, they will have to raise their prices, which will diminish any competitive edge. Others will have to look at changing their business model and scale back on employee hours or eliminate jobs altogether. The unluckiest ones may have no choice but to throw in the towel and close their doors.

Long-established high-technology businesses rely heavily on complex supply chains built over decades that can’t simply be reconfigured to “Buy American.” If they did, consumers could say goodbye to the low prices they see on their flat screen TVs, mobile phones and other technology gadgets.

But the BAT doesn’t end there. It is indiscriminate and will hit all imported goods, so the pain of this tax hike won’t just be on consumer technology goods but on everyday items that people buy at the store. Food, clothing, medicine and gas will all be impacted. Estimates show that families will pay $1,700 per year more for these necessities, totaling $1 trillion over the next decade.

Beyond the pain suffered by importers and consumers, there are also concerns about retaliation against U.S. exports. Daniel Griswold, a senior research fellow at the Mercatus Center at George Mason University, warns the BAT will likely be challenged by the World Trade Organization. “U.S. manufacturing exports will suffer,” Griswold wrote. “We’ll lose good-paying jobs making jet engines and computers for export in exchange for lower-paying jobs making sneakers, T-shirts and bouncy balls. That is not a formula for national greatness.”

To stay on the cutting edge and ahead of competition, technology companies need to always look forward to the next development or advancement. Our policymakers need to think with the same mindset. Unfortunately, the Border Adjustment Tax would be a major step backward with serious consequences for innovation.

— Steve Zylstra is president and CEO of the Arizona Technology Council.

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The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.

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