Trump Speech Drops Hints About Need for Border Tax

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By Kaustuv Basu and Laura Davison

The themes are aligning between the House GOP tax blueprint and a tax plan from the Trump administration, several Ways and Means Republicans suggested a day after the president’s address to Congress.

House Republicans acknowledge that the road ahead will be difficult, with many in the Senate and the retail industry questioning border adjustability, a controversial provision that would tax imports at 20 percent.

“I feel good. We’re headed in the right direction,” said Rep. Devin Nunes (R-Calif.). “But tax reform is really difficult. We still have a lot of education to do.”

But there was no mistaking that some in the tax-writing committee were buoyed by President Donald Trump’s Feb. 28 speech, in which he said that other countries charge high tariffs and taxes while the U.S. charges almost nothing when foreign companies ship their products into this country. Trump offered no details on his plan for overhauling corporate and individual taxes.

Ways and Means Committee Chairman Kevin Brady (R-Texas) said Trump wants to create a level playing field for U.S. companies and workers.

“He clearly wants to address that. My view is border adjustability achieves that,” Brady told Bloomberg BNA on March 1. The border adjustability provision is unpopular with some Senate Republicans and retailers, which fear that consumer prices might rise because of such a tax.

The speech showed that the House and the White House are trying to solve the same problem, even if not in the same way, said John Gimigliano, who leads Federal Tax Legislative and Regulatory Services at KPMG LLP.

“I don’t think Brady-Ryan are waiting for Trump’s signal on the blueprint. It’s pretty clear they are already all-in. The bigger question is what signal the speech sent to undecided Senate Republicans,” he said in an email.

Senate Questions

Other senators remain unconvinced that Trump’s speech moved him one step closer to an endorsement of the import tax.

Sen. Rob Portman (R-Ohio) said Trump was just describing the situation with American companies and workers right now. “I do think he talked about having a more level playing field on trade,” he said.

Sen. John Boozman (R-Ark.), who has heard from concerned retailers including Wal-Mart Stores Inc. about the import tax, said Trump’s comments were “mixed” and that it is hard to infer exactly what he wants to do.

Trump could have openly endorsed the border adjustment plan in his speech but chose not to, a tax lobbyist told Bloomberg BNA on the condition of anonymity. The White House tax plan isn’t far along in the process, but is unlikely to mirror the House plan, he said. As the GOP tax blueprint receives more opposition, the White House and Senate Finance Committee can work on a plan together and then coax the Ways and Means to adopt those ideas, the lobbyist said.

No Slowing Down

A lack of direction or specifics from the White House isn’t tempering Brady’s push on border adjustability. A border adjustment tax ultimately will be part of a tax reform package, Brady predicted in a CNBC interview.

The U.S. can’t be competitive without it, he said. Brady said he expects improvements from the House Republicans’ initial proposal, and said lawmakers are listening carefully to retailers, refiners, automakers and other groups on crafting such a tax and how to phase it in.

On tax reform overall, Brady said it’s important there be a single plan, delivered this year; his goal is by August. There’s work to do, he said, but “we’re grinding it out in a real positive way.”

Make or Break

The border adjustability provision has the potential to make or break a rewrite of the tax code, Nunes said.

“We will either have border adjustment or we will not have tax reform,” Nunes told Bloomberg BNA earlier this week. “We will have the big retailers who are operating in border-adjusted countries who will effectively have killed tax reform.”

Nunes added that he remains optimistic that critics of the provision will come around.

Rep. Kenny Marchant (R-Texas) said he can tell that Trump has border adjustability tax issues “on the brain.” But without more details, it’s impossible to tell if he embraces the idea, he added.

Marchant said it is up to Ways and Means to be the leader on the issue and to work with Trump and his team to come up with a host of tax and trade policy ideas that lead to an overhaul of the tax code and the president’s trade goals.

With assistance from Colleen Murphy and Kim Chipman.

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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