Some Tax-Writers Raise Questions About Five-Year BAT Phase-In

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By Kaustuv Basu and Colleen Murphy

Critics of the border adjustment provision in the House GOP tax plan are unimpressed after House Ways and Means Committee Chairman Kevin Brady (R-Texas) floated a five-year phase-in for the tax.

Rep. James B. Renacci (R-Ohio) told Bloomberg BNA that he wasn’t entirely convinced about the phase-in and wants a hearing where those directly affected could talk about their concerns.

Rep. Pat Tiberi (R-Ohio) said, “I think it helps some. I don’t know to what extent. I don’t have enough information. A CEO in my district who has a lot of employees, he suggested a 20-year phase in.”

Brady said at a Washington event June 13 that he envisions “a very gradual five-year transition on the border adjustment tax beginning with near-full deductibility in those early years and giving plenty of time for that to occur.” But some of Brady’s Republican colleagues suggest that the border adjustment tax remains a divisive issue.

Rep. Kenny Marchant (R-Texas) told Bloomberg BNA that committee members who have openly expressed doubts about the bill would not be swayed by the phase-in. “They’re more against the whole concept of introducing a new tax into the system.”

The phase-in would include special rules for areas such as financial services, shipping, digital services, and insurance. “We’ll make refinements to reflect those special circumstances as well,” Brady said, according to a transcript of his remarks. Brady has signaled a softening on the provision in recent days, saying he is committed to finding a workable solution.

Brady’s comments came as prospects for the 20 percent import tax appeared to dim in recent weeks. Several Republican lawmakers questioned the provision at a Ways and Means hearing May 23, while some Republican senators such as Sen. Tom Cotton (R-Ark.) have attacked the idea relentlessly. Cotton declined to comment on the topic June 13.

The provision is a cornerstone of the House GOP tax reform plan, and as originally proposed, would raise about $1.2 trillion over a decade to pay for tax cuts.

Not Backing Down

Barely hours after Brady’s comments, it was clear that opponents of the border adjusted tax weren’t backing down.

Americans for Affordable Products, a group that represents more than 500 businesses and trade groups, said in a statement that it was time for Brady to sideline the BAT so that the tax code could be reformed. “Otherwise, his actions serve no other purpose than to severely undercut a once-in-a-lifetime opportunity,” the group said.

Freedom Partners, a conservative group backed by the Koch network, said in its statement that phasing in a trillion dollar tax on consumers won’t make it any less harmful, while the Retail Industry Leaders Association was sharply critical in its statement, saying that the end result of the phase-in would be higher prices on food, gas, and thousands of other items.

Idea Explored Under Bush

The idea of a phase-in for a border adjusted tax has been explored before. When the Bush administration proposed border adjustment in 2005, it included a four-year phase-in, something practitioners have previously said could be reflected in the current House plan.

The conservative-leaning Tax Foundation originally estimated that a 20 percent border tax would raise about $1.24 trillion over a decade.

But if the tax was phased in over five years evenly, it would raise about $1 trillion, a difference of $200 billion over a decade, according to the foundation. Brady is proposing that an incremental portion of the tax be phased in each year. For example, in the first year, one-fifth of import expenses would be non-deductible, two-fifths in the the second year, and so on. A tax exemption for exports would be introduced under a similar schedule.

Ways and Means Reception

Other Republican members on Ways and Means said they were pleased with the effort.

The five-year time period is “a good-faith effort to try to solve problems that have been brought to the chairman and to our attention,” Rep. Tom Reed (R-N.Y.) told Bloomberg BNA.

Five years is generally the consensus when lawmakers have asked “‘OK if the supply chains had to be transitioned to a more American-based system, how long would that take?’” he said June 13.

Rep. Vern Buchanan (R-Fla.), who hasn’t publicly taken a position on the provision, said he hopes all the “more onerous” elements of tax reform are phased in over three to five years.

“On a lot of these tax proposals I don’t want to put anything in tomorrow,” he told Bloomberg BNA. “You can’t just abruptly change everything that rapidly.”

Rep. Sander M. Levin (D-Mich.), the former Ways and Means ranking member, was not impressed. “They are scrambling to try to save it but I don’t think that works. It creates total uncertainty,” he told Bloomberg BNA.

With assistance from Laura Davison and Alex Ruoff in Washington.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com; Colleen Murphy in Washington at cmurphy@bna

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

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