Import Taxes in GOP Tax Plan Cause for Concern, Members Say

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By Kaustuv Basu and Laura Davison

Dec. 1 — The implications of how an import tax would affect the retail industry, consumers and others dominated a meeting between House Ways and Means Committee Republicans and two economists who recently published a report on the subject.

Republican members met behind closed doors Dec. 1 with Douglas Holtz-Eakin, a former Congressional Budget Office director, and Alan J. Auerbach of the University of California, Berkeley, to address import taxes and rebates for exports, a key and controversial component of the House Republican tax overhaul blueprint. The report defends the use of border adjustment taxes, saying they create a level playing field for domestic and overseas competition and reduce the incentives for companies to move jobs or intellectual property offshore.

The meeting comes as Ways and Means Chairman Kevin Brady (R-Texas) continues to promote a tax plan that he says would simplify the code and grow the economy. But Republican members have plenty of questions and concerns about the plan’s border adjustability provision, which has the potential to disrupt how some companies do business.

“Obviously small businesses who are purely domestic won’t be affected by it, multinationals companies have sophisticated planning. But you have a whole range of companies that are small that have imports that come in as part of a supply chain for business. They are at risk and we have to understand the implications,” Rep. Charles Boustany Jr. (R-La.) told Bloomberg BNA.

Retail Concerns

The Retail Industry Leaders Association, a group of companies that includes Wal-Mart Stores Inc. and Apple Inc., has criticized the import tax. “While we appreciate that both the President-elect and new Congress want to move forward on comprehensive reform, the problematic tax on imports contained in the House blueprint is cause for concern,” the association said in a Nov. 17 statement.

Brady has previously said that transition rules would help in dealing with problems that a border adjustment provision might bring.

Ways and Means member Devin Nunes (R-Calif.) who has pushed his own consumption tax model, was more direct.

“Like anything, when you do a major change to the tax code, business models change. If you look at a static model of what your business model has been, you are wasting your own time and ours. I would also say, ‘If you don’t like this, what‘s your plan?’” Nunes said.

Potential for Economic Growth

Rep. Kenny Marchant (R-Texas) said members are trying to convince critics the plan has potential to grow the economy.

Holtz-Eakin and Auerbach told committee members that currency markets will adjust to cover the tax on imports under a border adjustability plan, Marchant said. So if an 18 percent tax is levied on a $1 product, the dollar would strengthen in comparison to the foreign currency to cover the 18 cent tax.

Brady and several other members want to have currency experts talk to the committee, Marchant said. “There is probably a counter theory,” he said.

Auerbach said after the meeting that there are various groups that think they are “winners or losers” in the new tax plan. “Obviously, the ones who think they are winners will keep their heads down, and the ones that think they are losers won’t,” he said.

A Ways and Means member at the meeting who spoke on the condition of anonymity said the retail industry raised concerns about how the plan would affect consumers.

“They are looking at it from the traditional, existing model and not looking at the dynamic of where this is going to go. There is a lot of anxiety as a result of that,” he said.

Still, there are difficult questions that need to be answered.

“How does this impact the American consumer? How do we make sure consumers understand where we are going and how we can get there?” Auerbachsaid.

A Stronger Economy

When asked how he planned to address the concerns of the retail industry and others, Brady told Bloomberg BNA that the blueprint would lead to a stronger economy, lower tax rates and a level playing field.

Brady said earlier in the day at a Heritage Foundation forum that he was open to listening to Democratic ideas for reshaping the tax code, although a fast-track budget process called reconciliation might be the ultimate way to pass a tax bill.Reconciliation would enable Republicans to pass tax legislation in the Senate without Democratic support.

“I am inviting our Democratic members of the House to engage in tax reform. Bring us your best idea on how to grow the economy,” Brady said at the forum.

When asked about the possibility of using repatriation to fund infrastructure needs, Brady said the House GOP tax blueprint uses proceeds from repatriated profits to lower tax rates, adding that he was open to ideas.

He said the national debate about a tax overhaul will be about whether the country wants a tax code filled with hundreds of provisions and credits that make for higher tax rates, or a simpler code, without such provisions, that keeps tax rates low.

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

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

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