Washington Insider: Border Adjustment Tax Proposal Heats Up

There's a lot of attention on U.S. borders just now, with talk of immigration and new barriers intensifying. In addition, Bloomberg says, the chief tax-law writer in the U.S. House, Kevin Brady, R-Texas, chairman of the House Ways and Means Committee is engaged in a public-relations "blitz" aimed at selling border tax adjustment plan to Republican skeptics.That task likely will not be easy, Bloomberg says, based on the early reviews from the GOP retreat in Philadelphia. Brady's idea is to tax imports but not export. The plan is supported by House Speaker Paul Ryan, R-Wis.In fact, the "border-adjustment" idea is key to a House GOP blueprint for overhauling individual and corporate taxes. The "adjustment" concept would generate sufficient revenue to allow generous income tax-rate cuts across the board, Bloomberg says, and cites the conservative Tax Foundation.The additional revenue could make the tax cuts "revenue neutral," a requirement under current Senate rules for passage of a tax bill without Democratic votes.Beyond that, though, Brady argues that a border-adjustment approach is vital for U.S. businesses to regain their competitiveness."There are severe consequences to the U.S. We will fall behind our competitors and jobs will suffer" without it, Brady told the Republican retreat in Philadelphia. He has touched on similar themes in speeches to the U.S. Chamber of Commerce and the Financial Services Roundtable over the past few days, Bloomberg notes.Still, many Republicans say they are undecided, caught between likely winners like aircraft manufacturers and other net exporters and net importers such as retailers like Wal-Mart Stores Inc. who import large amounts of products.In addition, the President told the Wall Street Journal recently that Brady's border adjustment approach is "too complicated." He wants "a direct tax on goods produced by U.S. companies that move jobs overseas" instead.Brady said his colleagues are "working hard" to win Trump's approval. On Wednesday, he met for 90-minutes or so with Senate Finance Chairman Orrin Hatch, R-Utah, whose committee handles tax legislation on the Senate side, and who hasn't taken a position on the border-adjustment approach.Hatch said he will "need to see the legislative text and have a better understanding of how this would be structured before being able to weigh in on whether it's something he can get behind," Julia Lawless, a spokeswoman said.During the session, which also included Representative Peter Roskam, R-Ill., and Senator Rob Portman, R-Ohio, members were told that without the offsets from border adjustment, tax rates would have to be higher than most Republicans want.While Ryan is a strong supporter of border adjustment, Senate Majority Leader Mitch McConnell, R-Ky., is not and insists that any tax overhaul be revenue neutral.Senator Rand Paul, R-Ky., said he hasn't made up his mind. "We have some companies in our state saying it would be good for them and we have others saying it wouldn't be so good for them," he said. "So I haven't made a final opinion, other than that the tax burden for the country overall should be less."Other opponents include the conservative group Club for Growth, which has labeled border adjustments a "middle-class consumer tax." Koch Industries, a traditional ally of GOP leaders, has warned of "devastating" consequences for the economy.The National Retail Federation is lobbying against a border adjustment, arguing on its website that it could make retailers' tax costs "three to five times larger" and "dramatically drive up the price of imported merchandise."Still, Brady supporters include anti-tax activist Grover Norquist and Rep Charlie Dent, a Pennsylvania Republican. They told reporters this week that border adjustments were "on the table" and preferable to punitive tariffs.However, Democrats, already unlikely to support the tax cuts that Republicans want, are also skeptical of border adjustment. "I don't think it works," Senator Ben Cardin, D-Md., said calling the approach a "consumption tax." Senator Ron Wyden, R-Ore., the top Democrat on the Finance Committee, also told Bloomberg he was unpersuaded, saying that it could end up hitting American consumers. "There certainly are a lot of questions about how you would do this," Wyden said. "Are we going to get taxed on the essentials that the working class buys?"If you think it is strange to see mainline Republicans working to raise taxes -- you would be right; except for the argument that the tax would be used to offset lower rates elsewhere. However, that argument also faces the criticism that the border adjustment tax would be levied on products nearer the consumer end of the supply chain, while the proposed tax cuts likely would benefit corporations and high income individuals.Still, no one ever said tax policy would be easy. Clearly, the tax policy debate has serious implications for many producers and should be watched closely as it proceeds, Washington Insider believes.