Photographer: Patrick T. Fallon/Bloomberg

Brady Tries to Soften Border Tax by Proposing Five-Year Phase-In

  • House Ways and Means chief says transition would ease concerns
  • Anti-BAT lobby rejects idea, saying it still harms consumers

House Ways and Means Chairman Kevin Brady on Tuesday floated a five-year phase-in for his controversial border-adjusted tax on domestic sales and imported goods as a way to ease its negative impact.

“Fair concerns have been raised,” the Texas Republican said Tuesday at an event in Washington. “My current thinking on border adjustment -- after listening to our businesses large and small and our members -- is a very gradual five-year transition on the border adjustment tax.”

While Brady has signaled openness to modifications of a border-adjusted tax, his comments mark the first time he specified what a change would actually look like. He said companies would be able to deduct the cost of most of their imported goods in the initial years and slowly phase in the removal of the deductions. The phase-in would also apply to exports, which would be fully exempt from taxes after the transition period.

The tax plan backed by House Speaker Paul Ryan and Brady includes a centerpiece proposal to replace the current corporate income tax with a 20 percent tax on U.S. companies’ domestic sales and imports. Exports would be excluded. Praise for the proposal has mostly come from academic economists and manufacturers, while industries such as retail that rely on imported goods warn that the plan would be prohibitively disruptive and raise consumer prices.

“Businesses need plenty of time to assess their current supply chain and decide what -- if any -- can return to the United States,” Brady said. “And they want plenty of time to see how the dollar adjusts and at what level.”

A border-adjusted tax, or BAT, lacks support from the White House and faces opposition by Senate Republicans, making it unlikely to be included in a tax package. It’s not clear that phasing it in slowly would placate conservative opponents who say an import levy would be passed on to consumers in the form of higher costs.

The anti-BAT lobbying group Americans For Affordable Products quickly rejected the five-year phase-in tweak, saying in a statement that it “does nothing to change the harmful impact on consumers, it only delays the political consequences for lawmakers.”

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