A border adjustment tax [BAT] overstretches the IRS

CLC proposes a border tax adjustment, with fees imposed on imports from nations "without comparable carbon pricing systems," and with rebates to exporters for sales into nations without such policies. It is not clear from the CLC discussion how the tax adjustment would be implemented in the case of nations without carbon pricing systems, but with regulations, or subsidies for such alternative energy sources as wind and solar power, or other policies that are purported to reduce GHG emissions.22 Such adjustments for nontax policies would be complex indeed, requiring an estimate of the tax- equivalent value of the given policies under examination. Does the CLC believe that the bureaucracies producing these estimates will be unpressured to adjust them in various directions depending on which interests are being affected? The larger problem, also ignored by the CLC, is that of the international supply-chain phenom- enon: Goods imported from a given nation are likely to embody components and other inputs from other nations—perhaps many other nations—in vastly differing proportions, and those nations' policies on GHG emissions almost certainly will vary considerably. The border adjustment would have to estimate transfer prices—always a subjective and problematic calculation—and the effects of shifting exchange rates, changing input proportions, and a host of other complexities in order to arrive at a border adjustment fee or rebate for a given economy. And even that is an abstraction that shunts aside various political pressures that inexorably will be felt and incorporated. This means that a new bureaucracy, or perhaps an expanded one at the Internal Revenue Service, will have a vast amount of work to do, with important implications for the allocation of resources. So much for the CLC claim that this policy would streamline "the regulatory state" and shrink "the overall size of government," to which we now turn.