Border Tax Foes Keep Up Pressure Pointing to Impact on States

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By Che Odom

Retailers and manufacturers opposed to a U.S. House plan on the taxation of imports intend to keep pressure on lawmakers by pointing out the possible cost to consumers and states.

Those industries are buoyed by the White House’s omission of border adjustment taxes in the tax reform proposal it released April 26.

President Donald Trump’s “very bold” tax plan avoids taxing imports and exempting exports as called for by the House plan backed by Speaker Paul Ryan (R-Wis.), which would have caused “unnecessary pain to consumers” and states, Americans for Prosperity spokesman Levis Russell told Bloomberg BNA.

“That is absolutely a great sign,” he said. Conservative groups, including Americans for Prosperity, met at the White House April 27 where Trump's top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin made it clear that border adjustments are “definitely not included in the White House plan and not likely to appear any time soon,” Russell said.

Ryan and other House Republicans have recommended lowering the corporate income tax rate to 20 percent and converting it into a destination-based cash-flow tax. Part of the plan calls for a “border adjustment” in which the tax would be applied to imports, but not to exports.

Manufacturers, including those in the energy sector, and retailers immediately spoke out against the proposal, which they said would drive up costs of materials and goods.

State-by-State Impact

Americans for Prosperity teamed up with Freedom Partners to cull through U.S. Census data on state imports to put together a list of states that would be most impacted by border adjustments.

“We set out to point out who the winners and losers would be,” Russell said. “Turns out all states would lose, though some more than others.”

The study by the two conservative groups found that border adjustments could mean billions in new taxes for many states—especially Michigan, Louisiana, Tennessee, New Jersey, Kentucky, South Carolina, Illinois, Texas, Georgia and California. Those states are most vulnerable to border adjustments “because of their high value of imports relative to the state’s economy,” the study found.

“We hadn’t seen too many members of Congress talking about the impact back home,” Russell said. “We think it is pretty effective.”

Difficult to Determine

The Tax Foundation, a conservative-leaning policy group, said it hasn’t ranked states according to potential impacts felt by border adjustments because reliable information on state imports is hard to get.

“Zeroing in on the impact of the border adjustment would be very tricky, since there isn’t reliable data on imports-exports by state,” John Buhl, the foundation’s media relations manager, told Bloomberg BNA.

But Russell said his group’s ranking of states by their sensitivity to border adjustments has been very persuasive, with newspaper editorial boards around the country pointing to the rankings in arguing against the important taxes.

Trump has yet to come out definitely against border adjustments, though Senate Republicans have been against the idea.

Retailers to Press Congress

Robin Roberts, a spokesperson for the National Retail Federation, told Bloomberg BNA that her organization “will not cease its efforts to educate lawmakers and voters” about the flaws in border adjustments “until the final tax reform bill is signed into law.”

“The devil is in the details, but we are optimistic that when tax reform crosses the finish line it won’t include a border adjustment tax or any other scheme that shifts the financial burden to consumers,” Matthew Shay, the federation’s president and CEO, said in a statement.

Some Version May Survive

Elements of a border adjustment tax may survive in a federal tax code overhaul even if the tax looks a bit different from the one proposed by House Republicans, said Ray Beeman, an Ernst & Young principal in Washington and former tax counsel for House Ways and Means Committee Republicans.

Even though border adjustments weren’t mentioned in the White House’s tax plan, it remains possible that the final tax package will include some aspects of a border tax short of the full border adjustment tax, he said April 26 at an EY conference in New York.

“It’s not fair to say today whether the border tax is alive, dead or something else,” Beeman said.

Center of Tax Reform

Under the House tax plan, border adjustments would generate revenue to help pay for tax cuts. Investment managers, state officials and others have said that without border adjustments, the deduction for state and local taxes and the exemption for municipal bond interest could be on the chopping block, particularly after congressional Republicans weren’t able to repeal and replace the Affordable Care Act and its related taxes. The president’s plan released April 26 did call for the elimination of the SALT deduction.

“If the border-adjustability piece, which raises close to a trillion dollars, is not completed, and we’ve heard mixed views on that, then everything is on the table,” Jim Febeo, senior vice president of government relations at Fidelity Investments, said at a February meeting of the National Association of State Treasurers in Washington.

To contact the reporter on this story: Che Odom in Washington at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the joint study is at http://src.bna.com/oiX.

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