Import Taxes Are Still Under Attack

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By Kaustuv Basu, Aaron E. Lorenzo and Laura Davison

President Donald Trump’s administration might be looking at taxing imports as an option, but the contentious provision in the House GOP tax blueprint continues to be under attack from retailers and lawmakers.

Americans for Prosperity, a Koch Industries-backed group, fired off a letter to House Ways and Means Committee Chairman Kevin Brady (R-Texas) Jan. 27, saying that border adjustments would amount to an unfair tax increase. Apple Inc. Chief Executive Officer Tim Cook was at the Capitol the same day meeting with lawmakers. Sen. Rob Portman (R-Ohio) said on Twitter he discussed tax overhaul with Cook.

Apple is part of the Retail Industry Leaders Association, a group that has vehemently opposed the import tax provision.

And Senate Minority Leader Charles E. Schumer (D-N.Y.), who is expected to have a significant say when it comes to a rewrite of the tax code, signaled his disapproval of the Trump plan with a statement saying that the middle class would bear the burden of any taxes on imports from Mexico to offset the cost of building a wall on the southern border. Schumer’s office said he hadn’t weighed in for or against the border adjustability provision, but certainly opposed the notion of using such revenue for the wall.

But there was little clarity on how the House GOP and the Trump administration plan to move forward on a plan that is dividing American companies as they take sides for or against the provision. Some Ways and Means Republicans are in a difficult spot, too, as they try to present a united front supporting Brady and Speaker Paul D. Ryan (R-Wis.) even as they face relentless pressure from retailers in their home states that oppose border adjustability.

A Few Hours

At the center of this growing storm sits Brady, who has taken to regularly appearing on various television channels as he cheerleads for the import tax, saying that he wants a level playing field for American businesses.

But the border tax issue is now in the front and center of the debate about the tax code, thanks to a dramatic few hours on Jan. 26, when Trump and Sean Spicer, the White House spokesman, seemed to indicate that they would use import taxes to fund a border wall before saying a few hours later that it was just one of the options they were considering.

Brady’s staff wouldn’t say whether Spicer’s wall remarks were helpful or hurtful to making the case for the tax. “As Chairman Brady made clear, he welcomes President Trump’s support on tax reform and he looks forward to working with the new Administration on the path forward,” a Ways and Means spokeswoman said.

Trump’s speech to GOP lawmakers in Philadelphia gave the right signals, Brady said.

“He believes that leveling the playing field with imports and exports is what our competitors do, and he’s determined to match that. Lifting the tax on made-in-America exports so we can sell more around the world clearly strengthens our economy as well,” he said.

But others don’t feel the same way.

Americans for Prosperity said in its latest letter that the import tax “would equate to a whopping tax hike of more than $1 trillion on American families and small businesses over 10 years using border adjustability.” The letter also complained that the plan would favor exporters and domestic producers over U.S. companies that source foreign materials.

A Republican lobbyist wondered whether Trump would ultimately go forward with the border tax, which is essentially an idea that initiated with Ryan and Brady, instead of trying to put his own imprint on the plan because he likes to lead, not follow.

Questions remain about what the Senate wants to do.

A spokeswoman for Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) told Bloomberg News that Hatch 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.”

How Much Money?

An academic paper released Jan. 27 also raised questions about how much money import taxes might raise.

Border adjustments have been estimated to raise more than $1 trillion over a decade, but the provision might not raise revenue in the long run if the U.S. doesn’t continue to run a trade deficit, a team of academics including Alan Auerbach at the University of California, Berkeley, and Michael P. Devereux of Oxford University said in a working paper.

“To the extent that this raises revenue, for instance, the impact will depend on what use is made of that additional revenue, on how interest rates react and on how consumers respond,” the paper said.

A decrease in imports or uptick in exports would cause the border adjustment provision to raise less in the future, but supporters say the provision is worthwhile whether or not it generates revenue because it protects the U.S. tax base.

In Committee

Some of Brady’s Republican colleagues on the Ways and Means Committee are caught in the crossfire.

Rep. James Renacci (R-Ohio) is one example. Just this week, he and a group of Ohio retail business leaders met in Brady’s office to talk import taxes.

The Republican lobbyist said that some of these members with powerful retail interests in their districts might not be inclined to take a difficult vote on the issue and anger their constituents, especially if the Senate or Trump gets rid of the import tax provision.

The Republican retreat in Philadelphia the week of Jan. 23 offered a chance for those in and outside the committee to find out more about border adjustment concepts.

Those not on the committee should walk away with a better sense of possible outcomes, committee member Mike Kelly (R-Pa.), said. “You don’t just want to jump,” said Kelly, who has questioned the impact of the proposal on global supply chains. “It’s all about knowing.”

Sen. Jim Risch (R-Idaho) said his party was committed to a tax overhaul, “But as far as saying something has been decided? There’s been nothing decided,” he said.

But a tentative timeline is in play. Ryan said Jan. 27 that a tax revamp can’t slip into 2018.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com, Aaron E. Lorenzo in Washington at aaron@bna.com and Laura Davison in Washington at ldavison@bna.com

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

For More Information

The working paper on border adjustments is at http://src.bna.com/lNn.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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