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The president-elect’s threat of a “big border tax” has manufacturers thinking twice before opening factories abroad, even if the Republicans in Congress writing the tax laws aren’t quite sure what Donald Trump means.
Trump in recent weeks has addressed the imposition of a tax on companies that make products offshore and then sell them in the U.S. These taxes are “one piece” of Trump’s plan to improve the economy, incoming White House press secretary Sean Spicer told reporters Jan. 5.
Trump called out General Motors Co. on Jan. 3 for manufacturing some of its cars in Mexico. The company responded by saying most of those are sold outside the U.S. Stanley Black & Decker Inc. told investors Jan. 5 that it will open a tool manufacturing plant in the U.S. as part of the “make-where-we-sell” political movement.
Companies are paying attention to Trump’s tweets about border taxes as they make decisions about where to manufacture goods, Robert Willens, an independent tax consultant in New York, told Bloomberg BNA. Under the House GOP tax plan, which is seen as the starting point for a rewrite of the tax code this year, “it’s almost untenable to manufacture outside the U.S. and then sell in the U.S.,” he said.
It isn’t quite clear, however, what Trump means by a “border tax.” The House Republican plan includes a border adjustment provision that would tax imports and exempt exports. He could also be referring to raising tariffs.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters he wasn’t sure what Trump meant.
Trump’s position could highlight a difference between the next president and House Speaker Paul D. Ryan (R-Wis.), who said Jan. 4 that Congress won’t raise tariffs. The House speaker has said overhauling the tax code will prevent outsourcing. Trump thinks border taxes, coupled with deregulation and a tax revamp, will benefit American workers, Spicer told reporters on a conference call Jan. 5.
“I think what he is concerned about is American companies who go offshore, get rid of American jobs and then want to sell back to the United States,” Spicer said. “I’ll let the speaker speak for himself.”
Brady said the Trump team and Ways and Means are in “constant communication” on taxes and trade and that both groups are working toward the same goal of making “the U.S. as a magnet for investment and making America the greatest location on earth for that new job.”
During the campaign, “Trump’s tax plan didn’t include a destination-based cash flow tax with border adjustability at the center, but the border tax talk may be a sign that he’s warming up to the idea,” Willens said. “It’s a way for him to get to his objective of keeping manufacturing in the U.S.”
Trump’s border-tax plan to keep jobs in America has played well with workers, but has been unpopular with some industries that import most of their goods, such as apparel and oil refining. But some energy industry interests are continuing to remain relatively neutral on border tax questions, according to a lobbyist who spoke on condition of anonymity to freely discuss deliberations.
These parties are concerned but not yet convinced of pain ahead, given the wide reach a tax overhaul could take. And Trump and his surrogates seem to be referring to border adjustments, even if Brady admitted uncertainty, the lobbyist said.
Tax changes such as rate reductions and immediate expensing might provide enough positives to outweigh negatives like potential price increases from border adjustments, the lobbyist said.
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