Pressure Increases to Discard Border Tax

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By Kaustuv Basu

The pressure on House Ways and Means Committee Chairman Kevin Brady (R-Texas) and Republican leadership to jettison border adjustability, a key but controversial part of the House GOP tax plan, keeps growing.

Rep. Mark Meadows (R-N.C.), the chairman of the Freedom Caucus, an influential group of about three dozen ultra-conservative House Republicans, said at a June 9 Heritage Foundation forum that it was time to look beyond the border tax because there is no consensus on the issue in Congress. Meanwhile, time is slipping away, he said, adding that Congress should cancel its August recess to work on a tax bill.

Meadows’ position could mean significant trouble for the House Republican leadership. The caucus flexed its muscles during the debate and passage of the health care bill, and has the ability to slow down legislation or try to make significant changes to it. The Freedom Caucus hasn’t taken an official position on border adjustability but members such as Rep. Jim Jordan (R-Ohio) oppose it. Meadows said the caucus would like to start debating a “real proposal” in July.

There already is significant opposition to the border tax from retailers, trade groups, and Senate Republicans, as well as some of Brady’s colleagues on Ways and Means. Opposition from the Freedom Caucus could be another hurdle to passing a tax reform bill this year.

But Brady is keeping up the fight for now, although he has said that tweaks are being made to the border tax to make it more acceptable.

Rates alone won’t stop businesses from leaving the country, the system needs to be redesigned to be competitive, a Brady spokeswoman told Bloomberg BNA in an email, repeating comments the chairman made earlier this week. “Frankly, anyone who has concerns with border adjustment, bring us their solutions on how we stop jobs from leaving and more importantly bring them back,” Brady said.

Revenue Neutrality

The issue of revenue neutrality could be another area of friction between the Freedom Caucus and Republican leaders.

Revenue neutrality when it comes to tax reform makes no sense, Jordan said at the forum. But some House leaders have said they would like a revenue-neutral tax bill.

A bill that isn’t revenue neutral could mean that some tax cuts expire at the end of 10 years because some Republican leaders want to use a fast-track budget process called reconciliation to pass a tax bill. Under reconciliation rules, the deficit can’t increase beyond the 10-year budget window.

In addition, cuts to welfare programs could generate $400 billion in additional revenue, Jordan and Meadows said at the forum. Jordan said the caucus could live with a “higher budget number” if Congress reforms the welfare system. This would include a requirement on able-bodied people to work, he said.

The Principles

The caucus also plans to push a 20 percent business tax rate, repatriation of foreign corporate earnings at a rate of 8 percent over 20 months, and doubling of the standard deduction on the individual side, Meadows said.

In contrast, the GOP blueprint suggests a 20 percent corporate tax rate and a 25 percent rate for passthrough entities. The Trump tax plan would tax all businesses at 15 percent.

Meadows seemed to back off from the idea of full expensing on business investments, which is part of the GOP blueprint. He suggested accelerated depreciation as an alternative.

“All of those principles, we could come to an agreement on some shape, form, or fashion,” he said.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bna.com

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

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