Trump Border-Adjustability Comments Roil Tax Overhaul Effort

By Kaustuv Basu and Laura Davison

Fresh doubts are being raised about the viability of a controversial import tax and the House GOP tax overhaul plan after pointed criticism from President-elect Donald Trump.

Trump said in an interview with the Wall Street Journal that the proposal that taxes imports and exempts exports was too complicated. “Anytime I hear border adjustment, I don’t love it,” he said.

There was immediate pushback from House Ways and Means Chairman Kevin Brady (R-Texas). He said in a statement that the current tax code favors Chinese steel over American steel and Mexican beef and autos over similar American products. “It’s time to tax imports and exports equally in America and end the ‘Made in America’ export tax,” Brady said.

The skirmish left some wondering about the fate of the tax overhaul plan, including the border adjustability provision. “I think in some respects they’ve been banking on Trump selling this plan in order to get it to pass the House and Senate. So this throws a wrench in that,” a House Republican aide, who spoke on the condition of anonymity, said.

But a compromise could be in the works. Sean Spicer, Trump’s incoming press secretary, said during a transition phone call that discussions were going on with House and Senate leadership. “As you know there is always a back and forth between the executive and Congress until you get this right. It’s something the President-elect is committed to getting done,” he said.

Major Roadblock

Trump’s comments are perhaps the biggest roadblock for the import tax provision, which has been criticized by retail groups and others, some current and former aides said.

A Democratic aide said House Republicans were scrambling for a strategy. “I think they are reeling right now. It is going to be hard. I don’t know how the Republicans reconcile this,” he said. “The Senate is all too happy for the House to go first.”

Another Republican aide suggested that Trump’s comments make it very difficult for committee members, who might not want to be seen as crossing the president-elect.

The aide suggested that Trump is buying himself time as he gets his tax team together. “They are going to want to put their stamp on this. Trump is just making it clear that this is not a one-way street,” he said.

A former House GOP staffer said this was a hurdle that the plan’s supporters will have to try to overcome. “And it’s likely they can’t get there, and that border adjustment, at least as envisioned in the blueprint, does not become law,” he said.

Trump is not the only one taking aim at the import tax.

William Dudley, president and chief executive officer of the Federal Reserve Bank of New York, said the proposal could have unintended consequences. He was speaking at a National Retail Federation conference in New York Jan. 17.

“I’m not of the view that import prices would go up 10 percent and the dollar would appreciate by exactly 10 percent so that the value that retailers pay for the imported goods would be exactly the same in dollar terms,” Dudley said, according to a news release from the retail federation.

Revenue Raisers

Marc Gerson, member at Miller & Chevalier Chartered, pointed out that the border adjustability provision is the main source of revenue for the tax overhaul bill. “Based on the policy reasoning and the revenue perspective, this is an essential component of the blueprint. It’s not a standalone provision that can get pulled out and you can still have the full bill,” he said.

The Urban-Brookings Tax Policy Center estimated that the provision would raise $1.2 trillion over 10 years.

The former House GOP staffer said that House Republicans might have to revisit the suggested corporate tax rate of 20 percent in the blueprint as they hunt for another source of revenue.

“It puts further upward pressure on rates, meaning 20 percent is very unlikely. They’ll likely end up closer to 25 percent,” he said.

A tax lobbyist said she wasn’t sure where else House Republicans could look to raise a trillion dollars.

“If you forget revenue neutrality, if you forget distributional neutrality and you don’t care about the score, you can get there,” she said.

Leaving the border adjustment provision by the wayside “obviously puts even more pressure” to find revenue to pay for the plan, or at least part of it, said Joe Rosenberg, senior research associate at the Tax Policy Center.

The group has estimated the overall tax plan would cost about $3 trillion over a decade with border adjustments included. Lawmakers would have to scale back the tax cuts they have proposed or identify other types of base-broadeners as substitutes for abandoning border adjustments, Rosenberg said.

“There’s no sort of easy way to find $1 trillion or $2 trillion,” he said.

With assistance from Aaron E. Lorenzo.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com and Laura Davison in Washington at ldavison@bna.com

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

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