Senators Question Import Provisions in House Tax Proposal

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By Kaustuv Basu and Laura Davison

Senators from both parties raised questions about an import tax provision in the House Republican tax plan on a day when more than 120 retailers and trade associations launched a campaign to stop it.

Determining who would bear the burden of an import tax and whether the tax is consistent with international trade obligations are among the questions Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) has about the plan. “Since border adjustability would likely be a significant shift in business tax policy, would adjustments need to be made to ensure we’re not unduly increasing the tax burden on specific industries?” Hatch asked at a U.S. Chamber of Commerce forum Feb. 1.

There has been some talk about how the Senate could be one of the final arbiters of what ends up in a tax bill, and Hatch left no doubts about his intentions during his chamber speech. “No one should expect the Senate to simply take up and pass a House tax reform bill, and that’s not a bad thing,” he said.

Hatch’s comments weren’t exactly a ringing endorsement of the tax plan, but House Ways and Means Committee Chairman Kevin Brady (R-Texas) and Speaker Paul D. Ryan (R-Wis.) are sticking to their guns for now and backing the controversial provision. A Brady spokeswoman said in a statement that it's important to consider all aspects of the tax blueprint, including lower corporate tax rates and a simpler international tax code. The Brady-Ryan team could gain some additional firepower from a pro-border tax group that includes General Electric Co. and Dow Chemical Co. that could debut as soon as Feb. 2.

The border tax provision, which would levy a 20 percent tax on imports, is a cornerstone of the House Republican tax plan, raising as much as $1.2 trillion over 10 years, according to the Tax Policy Center. But it has attracted opposition from businesses and some lawmakers who saythe tax will make products more expensive.

Still Studying

A day after Senate Majority Whip John Cornyn (R-Texas) said he would like a hearing in the Finance Committee to address the implications of the import tax, other senators seemed inclined to adopt a wait-and-watch attitude.

Sen. John Boozman (R-Ark.) said he had heard from Walmart Inc. and other concerned retailers in his state. “It’s something we are working hard to fully understand,” he said. But Boozman said he wants to know more about how the value of the dollar could go up and what it would mean for those who export goods from the U.S..

Walmart Inc. is one of the businesses that is part of the anti-border tax campaign called the Americans for Affordable Products that launched Feb. 1. Other companies in the coalition include Target Corp., Macy’s, Inc. and Nike Inc.

Sen. Mark Warner (D-Va.), a Senate Finance Committee member, told Bloomberg BNA the border provision is a “VAT on steroids.”

“I continue to hope that Chairman Hatch will try to do tax reform in a bipartisan way. It’s also got to be paid for,” said Warner, who is still studying the border tax proposal. “But this seems so far beyond anything that has been discussed. With this whole notion that it is going to work itself out and the dollar is going to rise in value, it seems a bridge too far.”

Warner is among lawmakers who met with Apple Inc. Chief Executive Officer Tim Cook when he visited the Capitol last week. They discussed tax policy including border adjustment, but Warner didn’t provide any additional detail.

Sen. Rob Portman (R-Ohio) was also circumspect, telling Bloomberg BNA “I do understand the need to be more competitive but I want to be sure that we do so in a way that does not cause dislocation in the economy.”

Retaliatory Measures

The Trump administration’s tough talk on trade agreements could mean the U.S. faces retaliation from trading partners on border tax adjustments, Adam Posen, president of the Peterson Institute for International Economics, said Feb. 1.

“The rest of the world is not going to roll over just because the U.S. says we’re doing this,” Posen said at an event at the Peterson Institute. “Even free-traders like Congressman Brady are going to have this in a context where the Trump administration is actively threatening its trading partners. And the idea that in the abstract this isn’t such a big aggression needs to be seen in the context of what the reality is.”

The WTO could authorize U.S. trading partners to retaliate at levels unseen before, said Chad Brown, a Peterson Institute senior fellow. The largest WTO-authorized retaliation amount in history is $4 billion. Brown estimates that using the formula in the past, other countries could impose hundreds of billions of dollars of discriminatory measures against U.S. products.

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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