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House Ways and Means Committee Chairman Kevin Brady (R-Texas) frequently says he and President-elect Donald Trump are 80 percent on the same page on a plan to overhaul the tax code, but the 20 percent of non-consensus includes taxes on imports.
House Republicans have border adjustments—a tax on imports with an exemption for exports—at the center of their tax plan. The provision would pay for lower tax rates for individuals and corporations and also protect the U.S. tax base, proponents say.
Trump has taken to Twitter in recent weeks to threaten a targeted “border tax” on companies that move operations overseas and then sell back into the U.S.
Trump’s team is still advocating a tariff on imports while the House GOP leadership has told the president-elect’s team that border adjustability in the lawmakers’ tax blueprint would have the same effect, according to someone familiar with the conversation. House Speaker Paul D. Ryan (R-Wis.) and Trump surrogates, including Treasury Secretary pick Steve Mnuchin, Stephen Bannon and Jared Kushner, met earlier this week to discuss tax overhaul.
“Leadership seems adamant on border adjustability,” a tax lobbyist told Bloomberg BNA on the condition of anonymity to speak freely. “I don’t think the Trump team fully understands the blueprint because they don’t have a robust tax staff yet.”
Both a tariff and the border adjustment plan could be gutsy moves. Trump’s tariffs could spark a trade war with foreign trading partners. The border adjustability plan could violate World Trade Organization rules, but some have said the U.S. could pressure the WTO to change its requirements.
A tariff “would be very complicated. That would be very damaging,” Rep. Devin Nunes (R-Calif.) told Bloomberg BNA. “Once people familiarize themselves with border adjustability, it becomes easy to understand. It’s much better than going a tariff route.”
Border adjustability has been one of the most contentious aspects of the House GOP tax plan, with industries that rely heavily on imports, including retail and oil, voicing opposition to the idea. Brady has repeatedly said that the House GOP blueprint and border-adjustable taxes would lead to a stronger economy.
Douglas Holtz-Eakin, a former Congressional Budget Office director, and Alan J. Auerbach of the University of California, Berkeley, told Ways and Means Republicans in December that currency markets would adjust to cover the tax on imports under a border adjustable plan and the dollar would strengthen compared with foreign currencies to cover the cost of the import tax.
Brady told reporters Jan. 11 that there had not been a lot of discussion of the issue.
“We know from experience when countries either establish and increase their border taxes that a pretty natural adjustment on their currency occurs,” Brady told reporters.
Brady said the dollar will adjust effectively and efficiently, and the global supply chain would adjust as well.
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