Koch Industries Takes on Import-Export Part of House Tax Plan

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By Aaron E. Lorenzo and Kaustuv Basu

Dec. 7 — House Republicans are fighting pushback from Koch Cos. Public Sector LLC, which opposes their tax plan’s provision on taxing imports and exempting exports.

Consumer costs would rise as a result, said the company’s top lobbyist, echoing concerns previously raised in the retail and textiles industries. Koch’s entry into the opposition spotlighted tension facing the GOP’s efforts to date.

But the cross-border proposal is needed to improve U.S. competitiveness in the global economy, said House Ways and Means Committee Chairman Kevin Brady (R-Texas). Others on the panel resisted more strongly.

“If you want to defend sweat shops in Vietnam, it’s up to you,” Rep. Devin Nunes (R-Calif.) told Bloomberg BNA. “That’s not something I’m going to do. We want to have things made in the United States.”

At issue is the border adjustability part of the House Republican tax revamp blueprint, which would tax imports and provide a rebate to exports as part of a comprehensive rewrite of the U.S. tax code. The border adjustment provision also ranks among the top revenue raisers in the plan, which Brady and House Speaker Paul D. Ryan (R-Wis.) have said they plan to vote on early next year to complement President-elect Donald Trump’s tax overhaul push.

The Koch group owns businesses that include oil and manufacturing. According to the Bloomberg Billionaires Index, Charles Koch and David Koch are worth more than $90 billion between the two of them. They have used their clout to affect legislation in Congress and state legislatures.

Price Hike

Their criticism presents Brady and his colleagues with a powerful adversary.

Koch, normally a Republican ally, issued a statement Dec. 7 criticizing the border adjustability provision.

Put simply, U.S. consumers would pay more for things they use every day, including products produced in and goods imported to the U.S.

“While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long term consequences to the economy and the American consumer could be devastating,” Philip Ellender, Koch’s president of government and public affairs, said in the statement.

A statement in response from Brady welcomed the input but also defended the import-export component of the plan.

“This pro-growth idea is a key provision that improves our global competitiveness and helps level the playing field for exports and imports,” Brady said. “It also meets our shared goal to eliminate any tax incentive to move our jobs, headquarters and innovation offshore.”

Nunes said there is no alternative to keeping U.S. companies from shifting abroad, such as through inversions.

“This is the solution,” he said. “It’s clean and it’s fair and it’s free market.”

Retail Challenge

Brady has been meeting with representatives from retail companies such as Best Buy Co. Inc., Walgreens Co., Target Corp. and Walmart to discuss the blueprint and the border adjustability provision.

The Retail Industry Leaders Association is among groups that have criticized it.

A Republican aide told Bloomberg BNA previously that the import tax provision is starting to trigger more negative attention from companies and industry groups, and members who aren’t on the Ways and Means Committee are starting to get calls complaining about how the tax could damage their business models.

Several dozen non-Ways and Means Republicans met with Brady Dec. 7, where he talked about what he and others described as the blueprint’s benefits.

Most exited the standing-room-only meeting, which House Majority Leader Kevin McCarthy (R-Calif.) hosted in his office suite, praising the plan’s immediate expensing provision. That element should unleash immediate economic growth, they said.

All such positives aside, though, one Ways and Means member said the 30-40 attendees who aren’t on the committee would have to come to grips with compromises needed to radically reshape U.S. taxes.

“This is a trade-off,” Rep. Tom Rice (R-S.C.) told Bloomberg BNA. “But it puts us in a better place.”

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

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

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