Ways and Means Republican Unity Behind Import Tax in Doubt

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Kaustuv Basu

House Ways and Means Committee Chairman Kevin Brady (R-Texas) has yet to win over some Republican colleagues on his panel when it comes to a proposed border adjustment tax.

Observers say the discord in the committee over the import tax is a sign of how difficult the road might be for a broader tax reform effort. The provision, which would tax imports at 20 percent while providing a rebate for exports, is a major revenue raiser for a tax overhaul blueprint released last June.

Several Republican committee members continue to have doubts about the provision, with the most serious concerns being raised by those with retail headquarters or oil refineries in their districts, or those with statewide political ambitions, congressional aides and lobbyists told Bloomberg BNA.

Cracks in committee unity have begun to show in private meetings, aides who spoke on the condition of anonymity said. One Republican aide's office would be relieved if a tax rewrite bill was taken straight to the floor, instead of a potentially difficult committee markup, the aide said.

The prospect of a politically damaging vote in the House, President Donald Trump’s ambivalence on the issue and the absence of Senate interest in the provision are raising concerns for those Republican committee members. Some fear that a vote for the import tax could lead to a fierce backlash from powerful business groups in their districts. Those on the fence might find the idea more politically palatable if Trump were to support the idea, giving political cover to the doubters, aides said.

It’s also unclear if Trump will include the import tax in a tax reform outline the administration has said it will release in the next couple of weeks. Chief executive officers of AutoZone Inc., Best Buy Co., Gap Inc., J.C. Penney Co., Jo-Ann Stores Inc., Target Corp., Tractor Supply Co. and Walgreens Boots Alliance Inc. are scheduled to meet with Trump Feb. 15 to discuss the border tax, according to a Bloomberg report.

Political Ambitions

Three Ways and Means Committee members are currently eyeing statewide political office. Rep. James B. Renacci (R-Ohio), who is likely to run for governor, has been helping Ohio retailers who have concerns about border adjustability, shepherding them to Brady’s office to voice their concerns.

Ways and Means member Kristi Noem (R-S.D.), who plans to make a run for South Dakota governor in 2018, said she is examining the issue. “We are continuing to meet with folks and educate them and it is going well so far,” Noem said.

Among those opposed to the border tax is the South Dakota Retailers Association, a group that is part of a coalition of more than 120 corporations and business groups called the Americans for Affordable Products that opposes the import tax.

Rep. Pat Tiberi (R-Ohio), a Ways and Means member who is eyeing a Senate run in 2018, has also been under pressure from Ohio retailers over the import tax issue. But many see him as a “loyal company man” who might not break ranks with Brady.

Brady told Bloomberg BNA that those with doubts will end up supporting the bill.

“At the end of the day, we will have no Ways and Means members who support the current tax code that provides tax breaks for foreign products over U.S. products,” Brady said. “At the end of the day, I feel very confident that we are going to have equal taxation in the United States and we are going to eliminate every tax break that moves job overseas.”

Addressing the American Council for Capital Formation earlier in the day, Brady said a transition period would allow potentially affected companies and industries to adjust, and a stronger dollar should soften potentially higher consumer prices.

“We’ve engaged with industries on how we design key elements of this, including the glide path forward on interest deductibility issues, the same on border adjustability issues,” he said. “I’ve not yet heard a valid complaint yet that can’t be resolved in a very positive way through the design and the transition of these provisions.”

Oil Refiners and Auto Dealers

Some Ways and Means Republicans such as Rep. Patrick Meehan (R-Pa.) have been floating the idea of exceptions to the border tax. But Brady has said repeatedly that there will be no exceptions in the House tax plan.

“I’m hoping that there may be an ability to consider the methods of recognizing that a commodity can only be purchased overseas, maybe a precious metal, oil that in its natural state that helps support manufacturing jobs here,” Meehan told Bloomberg BNA. “Maybe we can find a way to recognize that.”

Meehan is under pressure from some oil refiners in Pennsylvania who don’t like the import tax, lobbyists said.

Another area of concern has been the effect of the import tax on the automobile industry.

Rep. Mike Kelly (R-Pa.), a Ways and Means member who is an auto dealer, said he has questions about complicated supply chains, especially when it comes to the automobile industry and how the import tax affects it.

Kelly said it was difficult to determine what was an American-made product when considering vehicles. For example, the Toyota Camry sedan, a Japanese brand, has the most American-made content of any car, he said.

Kelly said he would make a decision on border adjustability only after he saw the “final piece.”

“If it hurts American consumers, it doesn’t make sense for me,” Kelly said, adding that Republicans should not just adopt the plan because it “sounds good.”

Rep. Vern Buchanan (R-Fla.), who previously owned several car dealerships, called border adjustability a “big issue.”

“I haven’t decided where I’m on it until we get the whole package put together. There could be exceptions and carveouts,” Buchanan told Bloomberg BNA.

Prime Time-Ready?

Whether these members do get on board will be decided by what else they can get out of the tax plan, the Republican aide said: “Are there enough carrots to deal with the sticks?”.

When the blueprint was released in June 2016, it was an “aspirational document,” the aide said. “But now the rubber has hit the road.”

Some members like Renacci and Kelly are pushing for a hearing on the import tax proposal, arguing there’s no need to rush the tax reform effort. Brady has said he plans to hold a hearing on the blueprint provisions but hasn’t provided a timeline.

With assistance from Aaron E. Lorenzo and Laura Davison in Washington.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bna.com

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Daily Tax Report