House Republicans and President Trump both want to reduce the corporate income tax and replace it with a business cash-flow tax.  Supporters say the tax would boost investment and economic growth.

One of the goals is to make “Made in America” products more competitive abroad. If adopted, it would impose new taxes on imports and exempt U.S. exports from federal corporate taxes. The 20 percent tax would be applied to a business’ gross receipts and subtract gross expenditures other than interest expenditures.

Some experts say the tax, as currently envisioned, may not even be legal; others say it would hurt consumers.

According to a recent post by Joel P. Trachtman, a professor of international law at Tufts University’s Fletcher School of Law and Diplomacy, the cash-flow tax would affect imports and exports differently. All companies whose products are consumed in the U.S.–regardless of where they are made–would face levies, said Trachtman. Only U.S. businesses would be allowed to deduct expenses. Thus imports would be taxed the full 20 percent rate while exports would be excluded from U.S. taxation.

Such border-tax adjustments are permitted under World Trade Organization (WTO) rules, but only for taxes on a product, such as a sales tax, as opposed to income taxes.

Whether the border-tax adjustments are deemed legal by the WTO will depend on a key interpretation, says Trachtman: “Is the tax in question an income tax or a tax on a product? It does seem possible to characterize the new tax as a tax on a product.” He also notes the fact that imports would face a 20 percent tax on their price with no deductions while domestic producers would be able to deduct most expenses–including payroll–from the tax base could also make the import border adjustment illegal under WTO rules.

Trachtman said if such a plan were passed by Congress and signed by Trump the plan would likely lead to lengthy litigation at the WTO. He said a “likely” ruling that the tax is an income tax and is applied in a discriminatory matter, would mean that exempting exports would be considered an illegal subsidy and taxes on imports an illegal tariff. “This could lead to trade sanctions against the U.S. and open the door to counter sanctions and the start of a trade war,” said Trachtman.

I don’t see how that is beneficial to the U.S. economy.

Moreover, a report published on January 26 by Cowen Research said some marquee U.S. brands would be hurt big-time by a border-tax adjustment.

Apple, the world’s largest company, would see a big hike in its tax bill because it won’t be able to deduct the expense of assembly abroad. Constellation Brands, the largest beer importer in America, will not be able to expense the cost of goods it brings across the border, like its Corona brand from Mexico. Gap would be another big loser, since Cowen estimates that between 50 and 80 percent of the retailer’s cost of the goods it sells comes from abroad.

These are just a few of the many companies whose earnings could come under attack by the GOP tax plan. We shouldn’t expect them to sit idly by.