Border Tax Could Be Negotiating Position for GOP Leaders

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By Kaustuv Basu

Why won’t House Ways and Means Committee Chairman Kevin Brady (R-Texas) and House Speaker Paul D. Ryan (R-Wis.) give up on the controversial border adjusted tax?

The two may be hoping that by continuing to push the tax, they will stake out a stronger negotiating position as Republican lawmakers and the White House work on a tax reform bill, former congressional staffers told Bloomberg BNA.

The border adjustability plan, a fundamental part of the House GOP tax reform blueprint released more than a year ago, would tax imports and exempt exports. It is strongly opposed by retailers like Wal-Mart Stores Inc. and Best Buy Co., some Republicans on Brady’s committee, and a healthy number of senators. Treasury Secretary Steven Mnuchin has said the administration has concerns about border adjustability. But Brady and Ryan may not want to negotiate publicly against it before the Senate or administration proposes an alternative.

“There is a difference between opposition and an alternative,” said Sage Eastman, a former top Republican staffer at Ways and Means, now a principal at Mehlman Castagnetti Rosen & Thomas. “Right now there is opposition, but expecting someone to drop a policy fight before you put your own idea in the ring just isn’t realistic.”

Brady and Ryan face another problem—there is no simple fix for tax base erosion, which results from companies reducing their tax burdens by shifting operations to lower-tax countries.

From the two lawmakers’ perspective, “there’s no easier anti-base erosion rule. They’re all hard, and they would say none work as well as the BAT,” said Rohit Kumar, a principal at PricewaterhouseCoopers LLP and a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.). “So they figure once everyone else figures that out, they’ll join the House on Planet BAT.”

But questions remain about whether Brady and Ryan are strengthening their position by sticking with the BAT, or making themselves less relevant in the tax reform debate.

Clock Is Ticking

Continuing to back the border adjustment tax reflects a delicate balancing act by Brady and other House leaders, as it may carry significant political risk for House Republicans attempting to leave their imprint on what they hope will be the biggest tax code overhaul since 1986.

A former Senate staffer said there is a growing perception that if House GOP leaders don’t back off the tax, the Senate is going to cut a deal with the White House. If the House doesn’t have a plan to address cross-border tax issues beyond the border adjustment tax, someone else could fill the vacuum with an alternative. That could leave Brady and Ryan little choice but to accept whatever plan is put forward.

But Brady has recently said he is open to other ideas.

“If border adjustability goes away, the problem still persists. American jobs, research, and headquarters will continue to move overseas and some of these supply chains will not come back unless we dramatically change the tax code,” he told Bloomberg BNA.

“Well, the whole issue is base erosion,” Brady said. “If they don’t like border adjustment as that solution, what is the best alternative?”

Brady said on C-SPAN July 2 that he is looking at some tax overhaul ideas from the past, including a 2014 tax reform draft from former Ways and Means Chairman Dave Camp (R-Mich.).

Ryan’s office didn’t respond to a request for comment.

Others who hope to leave their mark on a tax reform bill have grown bolder in their opinions on the import tax.

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) recently said that he doesn’t see the tax making it to a final plan, and that Brady would give up on it in the end. “There are many reasons why I think he will,” Hatch said without elaborating. “He feels deeply about that. And I will just keep working with him.”

Leprechauns and Unicorns

But the absence of a realistic alternative to the border adjustment tax has encouraged its supporters.

The Senate continues to work on a more conventional tax reform plan that would broaden the tax base and lower rates. There has been little detail from the Trump administration other than a one-page outline released in late April, which didn’t include the border adjustability plan.

Reps. Peter Roskam (R-Ill.) and Devin Nunes (R-Calif.), two of Ways and Means’ biggest supporters of the tax, said as much.

“Look at the alternatives. The alternatives are miserable,” Roskam told Bloomberg BNA.

“There is no plan that is a leprechaun riding on a unicorn,” Nunes said. “Unless somebody has the unicorn plan that I haven’t seen, that’s how it’s going to be.” A plan such as the one proposed by Camp would invite more opposition from interest groups that feel they are losing out, Nunes told Bloomberg BNA.

One idea recently floated in private conversations among Ways and Means Republicans is to try to prepare two revenue-neutral bills based on the framework of the House GOP tax blueprint. One would include border adjustability and the other wouldn’t. It would be an exercise in trying to find out how low tax rates could go with those two options.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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