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A group of large exporters, including General Electric Co., Dow Chemical Co. and Eli Lilly and Co., are publicly embracing one of the most contentious aspects of the House Republican tax plan.
The exporters will push the border adjustment provisions, which would tax imports and exempt exports. Oracle Corp. and Tabasco sauce maker McIlhenny Co. are also among those joining the coalition, which doesn’t yet have a name and will officially launch in the coming weeks. The company names were included in the event program at a Jan. 26 Washington International Trade Association event.
The provisions are a central feature of House Ways and Means Committee Chairman Kevin Brady’s (R-Texas) proposal to rewrite the tax code. Supporters say it protects the U.S. tax base. Importers, such as retailers, have opposed the idea, saying it would raise prices for consumers.
It’s what our major trading partners do, Brian Reardon, a consultant who is advising the group, said at the WITA event. “If it’s such a bad idea, why are they all making this bad choice?”
The formation of the pro-border-adjustability group comes as another organization, Alliance for Competitive Taxation, said it supports the House GOP blueprint as a framework for “forward thinking business tax reform” to help grow the economy.
The alliance includes Eli Lilly and Dow, as well as Honeywell International Inc., Pfizer Inc. and Procter & Gamble Co.
For Brady, the support for border adjustability comes after weeks of being under intense pressure from retailers such as Wal-Mart Stores Inc. and Best Buy Co. Inc.
Companies that rely heavily on imports would see their taxes “skyrocket,” said Rachelle Bernstein, tax counsel at the National Retail Federation.
“We will have many members who will have tax burdens larger than their profits,” she said. “There will be no choice but to pass that on to consumers.”
Rick Woldenberg, chairman of toymaker Learning Resources Inc., said under the plan he would have to raise prices by a third. He would expect his volume to decline by 40 percent and would have to fire about 20 percent of his 150 employees.
“This plan is not good for me if it kills me,” Woldenberg said.
“Sometimes the negativity comes when you just focus on what the border adjustment might do, particularly in the short run on prices,” said Janet Boyd, Dow’s director of government relations. “But when you put it in total, it’s a much better and stronger tax system.”
Some of the disparate views can be attributed to the lack of empirical evidence of how such a plan would play out if it is implemented.
“No country has moved to everything like the tax blueprint and then border adjusted it after-the-fact,” said Gordon Gray, director of fiscal policy at the American Action Forum.
Economists who support border adjustments say the dollar should rise about 25 percent to compensate for the tax. But that doesn't account for other economic factors.
“There is a whole other realm of things that affect currency prices,” Gordon said. “There will be things pushing the currency upward, things pushing downward.”
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