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Skeptics of border adjustability have said for weeks that the controversial import tax provision was on life support.
Its prospects in current form still appeared to be in doubt after a House Ways and Means hearing May 23, where some committee Republicans raised concerns about the 20 percent import tax. Ways and Means Republicans including Mike Kelly (Pa.) and James B. Renacci (Ohio) have long questioned the provision. That skepticism was on open display at the hearing, with others such as Rep. Erik Paulsen (R-Minn.) also questioning the impact of border adjustability.
The growing uncertainty means that Ways and Means Chairman Kevin Brady (R-Texas) could have trouble passing a bill that includes the provision out of committee. He has said in recent weeks that his staff is working on a revised version of the BAT but hasn’t provided any details. Brady’s cause wasn’t helped by Treasury Secretary Steven Mnuchin, who sounded a clear warning about the BAT on the day of the hearing, saying it wouldn’t level the playing field for companies.
Brady said after the hearing that he intends to keep pushing the controversial provision. Asked if the BAT provision was dead, he said it wasn’t. “On a reform this bold, Republicans and Democrats would ask what the impacts are,” Brady said, adding that a “good transition” could help answer some of the questions raised by members.
House Speaker Paul D. Ryan (R-Wis.) said May 18 that a border-adjusted tax “should have some kind of an adjustment and phase-in period.” The retail lobby, however, has said it opposes a BAT in any form.
Paulsen said at the May 23 hearing that he couldn’t support the provision that taxes imports and exempts exports as it was outlined in the House GOP tax blueprint released in June 2016.
Other concerns were aired by Rep. Adrian Smith (R-Neb.), who said there are some “barriers” in the proposal that could prevent tax reform from being “truly pro-growth,” and Kelly, who said the border tax could raise prices for consumers.
Mnuchin, who is helping shape tax legislation by working with the House and Senate, said during an appearance in Washington that the BAT “has very different impacts on different companies, it has the potential to pass on significant costs to the consumer, it has the potential of moving the currencies.”
The Treasury secretary met with Democrats on May 23, according to Rep. Sander Levin (D-Mich.) “He said the administration does not support BAT in its present form,” said Levin, adding that the Trump administration also doesn’t support the basic idea of border adjustability.
When told about Mnuchin’s comments, Ways and Means member Devin Nunes (R-Calif.) said, “I keep saying I would like to see a plan where something works” besides a border-adjusted tax. “Haven’t seen one yet.”
Border adjustment would be a big change and there will be lots of discussion about it along the way, said Brian Reardon, an adviser to the American Made Coalition, which supports the House GOP blueprint.
“What I didn’t hear was anybody with an alternative plan,” he said. “There was lots of picking at it, but nobody saying here’s what we can do instead.”
The hearing wasn’t likely to make the passage of the BAT “any more likely than it was yesterday,” said Jon Traub, a former Republican staff director for the Ways and Means Committee.
“The hearing was quite substantive; members were clearly trying to better understand the potential impact of the BAT. Not surprisingly, there were a few members on the Republican side of the aisle who expressed some caution about the BAT,” said Traub, now managing principal of tax policy at Deloitte Tax LLP.
Companies could prepare in this uncertain tax environment by considering situational modeling that weighs proposals against one another while creating customized alternatives to analyze the effects of various tax reform options, Traub said in an email to Bloomberg BNA. “When you’re confident in what you know about your company and reform, and can model the likely impacts, then you will be prepared to execute regardless of the eventual outcome of changes in tax,” he said.
The hearing was a necessary step in ultimately getting to a detailed proposal, said Sage Eastman, a former senior counselor for Ways and Means. “It confirmed what others have said; if border adjustment is going to survive, there needs to be changes,” he said.
“I think it’s clear that there is significant skepticism. But again, we don’t have details. The chairman and the speaker have to continue to develop their proposal and continue to sell their proposal,” said Eastman, now a principal at Mehlman Castagnetti Rosen & Thomas.
A tax lobbyist pointed out that if opponents could have killed border adjustability, they would have already done so. “And with leadership clearly still supporting it, as long as border adjustability doesn’t die of the blood loss, I’m not sure what eventually kills it,” the lobbyist told Bloomberg BNA in an email.
The hearing was heavily attended by representatives from the retail industry, which has largely been critical of the provision.
Rising consumer prices was the focus of Target Corp. CEO Brian Cornell’s testimony, who said the border adjustment tax would more than double the retailer’s tax rate because the company relies heavily on imports. Target is based near Paulsen’s district, and the Minnesota lawmaker is a former employee. But William Simon, a former Wal-Mart Stores Inc. president and CEO, spoke in favor of it.
“I think the support for this idea is very small, and what we heard even among Republican members is not a lot of confidence for this provision,” said David French, vice president of government relations for the National Retail Federation. “It’s a question of how much longer the committee continues to pursue a dead end.”
Rep. Carlos Curbelo (R-Fla.) shrugged off the idea that the committee will need to abandon the provision because members don’t agree on it. Curbelo said he sees consensus forming around the idea of a long transition period for the BAT, as well as other elements of the House plan.
“It’s the same as our path forward on every other element of our tax reform proposal: We need to continue working on them, refining them and building consensus within the committee,” he told Bloomberg BNA after the hearing. “That’s why we’re having these hearings, so everyone can ask their questions, so we can get expert input, and continue working this. This is a living process.”
With assistance from Saleha Mohsin and Colleen Murphy.
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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