OPINION:
Americans are not in a good mood this month after cutting big checks to the IRS, thanks to a complicated and unfair tax code. There is a feeling that large corporations and rich individuals know how to game the system to pay little to no taxes. The sad truth is that without reform, the loopholes, kickbacks, and complex provisions that poison the tax code will remain for those with the means to take advantage.
A complicated tax code benefits only large corporations, wealthy individuals and tax attorneys. Our system is in dire need of simplification. The Biden administration pushed for legislation to increase the number of IRS officials enforcing the tax code’s many complicated provisions.
It is time for Congress to do something productive and make the taxes flat and easy to understand. The idea pushed by former House Speaker Paul Ryan to make the code simple enough to file on a postcard is a good one and should be a focus of Congress today.
One of the complex provisions that benefits one special interest is the duty drawback. The provision allows a large corporate importer and exporter of spirits to effectively pay nothing if the company meets certain criteria. According to U.S. Customs and Border Protection, current law allows a drawback that is a “refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods and refunded when the merchandise is exported or destroyed.”
In other words, importers pay a duty or fee when something is imported. They are then allowed to get a refund, in the form of a check from the federal government, if they export or destroy the merchandise.
In concept, this provision creates a commonsense exception in the code for imports that end up getting exported. It would make far more sense to have these corporations not pay anything in this situation. Still, our federal government has determined that it wants this complicated system that ends up collecting money before giving it back.
Some are trying to expand the duty drawback unfairly, hoping to gain a competitive advantage over smaller importers and exporters that don’t qualify. Legislation by Sen. Bill Cassidy, Louisiana Republican, and Rep. Morgan McGarvey, Kentucky Democrat, expands the allowable spirits to qualify as exports to let companies take advantage of an expanded definition. This is unfair because the import and the export can differ to be eligible for the exemption.
This legislation is being marketed as a “harmonization” of tariff schedules for whiskies, yet it is really a handout to large importers and exporters of whiskey and bourbon. To get the kickback, a company would have to be large enough to engage in mass exports to get more money back from the federal government.
It is unfair because it applies only to the large companies in this space and serves no purpose. If changed, a large importer of whiskey would pay duties, taxes and fees on imports to Customs and Border Protection. The importer then can export that whiskey or a substituted qualifying alcohol under current law to qualify for the refund. These importers would be allowed to have a team of lawyers prepare a document showing that they imported whiskey and exported bourbon to get a check back from the federal government that equals the duties, fees and taxes paid.
The government should just get out of the way of these transactions, and the fees, duties and taxes paid on imports should be abolished for all, regardless of size. When money comes into an agency of the federal government, that agency cuts checks to give the money back. That comes with a cost. A fair system would abolish all these provisions of law to let all the importers and exporters keep their money.
It is unlikely that lawmakers will abolish duties, fees and taxes associated with the import and export of whiskey. Therefore, the system should be made fair. The duty drawback proposed change would make the current system less fair. A change in the law would provide a competitive advantage to those that are large because they end up not paying anything, while the smaller importers and exporters have to pay all the fees, taxes and duties. This change sounds like cronyism because the change would benefit some companies to the detriment of competitors, smaller importers and exporters in the form of increased cost.
A duty drawback expansion would be patently unfair and should be rejected by Congress. A better solution is to eliminate all these taxes, fees and duties to create an even playing field for all.
• Brian Darling is former counsel and senior communications director for Sen. Rand Paul, Kentucky Republican.
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