House Tax Chief Pitches Border-Adjusted Plan That Trump Snubbed

  • Proposal would hit imports and domestic sales, not exports
  • Lawmakers skeptical about vision for remaking corporate taxes

Brady says a border-adjusted approach to taxing U.S. businesses is vital to preserving U.S. competitiveness.

Photographer: Sam Hodgson/Bloomberg

The chief tax-law writer in the U.S. House -- fresh from a public-relations blitz aimed at selling a controversial plan for taxing U.S. businesses’ domestic sales and imports -- now has to persuade his fellow Republicans in Congress.

Based on the early reviews from lawmakers attending a GOP retreat in Philadelphia, that’s not going to be easy.

Representative Kevin Brady, chairman of the House Ways and Means committee, isn’t backing down on an ambitious overhaul of corporate taxation under which U.S. companies’ imports would be taxed but exports wouldn’t. His pitch to the Republican ranks -- supported by House Speaker Paul Ryan -- follows a lukewarm response from President Donald Trump, intense pushback from the retail industry and concern among some analysts that the plan might lead to higher oil prices.

The so-called “border-adjustment” idea is key to a House GOP blueprint for overhauling individual and corporate taxes -- a plan that includes generous tax-rate cuts across the board. The border-tax proposal is projected to raise about $1.1 trillion in revenue, according to the conservative Tax Foundation. That revenue makes it essential for offsetting the sought-after rate reductions. A tax bill would have to be revenue neutral to clear the Senate without Democratic votes under existing rules.

Beyond that, though, Brady says a border-adjusted approach to taxing U.S. businesses is vital to preserving U.S. competitiveness.

Read more: House Republicans’ Plan for a Tax Revolution: QuickTake Q&A

“There are severe consequences to the U.S. -- we will fall behind our competitors and jobs will suffer” without it, he said in an interview before Republicans gathered in Philadelphia. He has touched on similar themes in speeches to the U.S. Chamber of Commerce and the Financial Services Roundtable over the past few days.

Republicans in the House and Senate remain undecided -- caught between likely winners like aircraft manufacturers, which are net exporters, and losers such as retailers like Wal-Mart Stores Inc. -- in their home states. Another obstacle may be the president, who described border adjustments to the Wall Street Journal earlier this month as “too complicated” and has repeatedly called for a different approach: placing a direct tax on goods produced by U.S. companies that move jobs overseas.

Brady said his party is “working hard” to win Trump’s approval. The president is scheduled to join lawmakers at their Philadelphia retreat Thursday.

“It fits right where he wants this country to be," said Brady.

Lawmakers’ Meeting

On Wednesday, Brady worked on his colleagues regarding border adjustments during a 90-minute meeting on tax reform that he led with Senate Finance Chairman Orrin Hatch. Hatch, whose committee handles tax legislation on the Senate side, hasn’t taken a position on the border-adjusted tax.

Hatch will “need to see the legislative text and have a better understanding of how this would be structured before being able to weigh in on whether it’s something he can get behind," Julia Lawless, a spokeswoman said.

During the session, which also included Representative Peter Roskam of Illinois, and Senator Rob Portman of Ohio, members were told that without the offsets from border adjustment, tax rates would have to be higher than most Republicans want.

While Ryan has come out as a strong supporter of border adjustment, Senate Majority Leader Mitch McConnell hasn’t taken a position. McConnell has insisted that the tax overhaul be revenue neutral.

Senator Rand Paul of Kentucky said he hasn’t made up his mind. “We have some companies in our state saying it would be good for them and we have others saying it wouldn’t be so good for them,” he said. “So I haven’t made a final opinion, other than that the tax burden for the country overall should be less.”

Conservative Opponents

Senator David Perdue, a Georgia Republican and a businessman before he was elected to the Senate in 2014, said he opposes the idea.

Other opponents include the conservative group Club For Growth, which has labeled border adjustments a “middle-class consumer tax.” Koch Industries, a traditional ally of GOP leaders, has warned of “devastating” consequences for the economy.

The National Retail Federation is lobbying against a border adjustment, saying on its website that it could make retailers’ tax costs “three to five times larger” and “dramatically drive up the price of imported merchandise.”

Still, Brady has some supporters -- anti-tax activist Grover Norquist said this week he could back border adjustments as part of a larger tax overhaul.

Representative Charlie Dent, a Pennsylvania Republican, said to reporters on Wednesday that border adjustments were “on the table” and preferable to punitive tariffs. “I’m open to it,” he said. “I want to learn more about it.”

Democrats, already unlikely to support the tax cuts that Republicans are pursuing, are also skeptical of border adjustment.

“I don’t think it works,” said Senator Ben Cardin of Maryland. He labeled it a “consumption tax.”

Senator Ron Wyden, the top Democrat on the Finance Committee, also seemed unpersuaded, saying that it could end up hitting American consumers.

“There certainly are a lot of questions about how you would do this,” Wyden said. “Are we going to get taxed on the essentials that the working class buys?”

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