Retailers breathed a sigh of relief Wednesday as the Trump administration excluded the House Republican import tax from its new tax reform principles.
Industries that rely on imported goods waged a high-profile campaign against the border-adjusted tax over the past several months and earned a victory Wednesday as President Trump declined to endorse it.
Yet border-adjusted tax opponents and advocates hinted Wednesday that the victory is not permanent and that the reform idea could resurface in further talks.
"We will not relent in our efforts to ensure a border adjustment tax has no place in any tax policy," said Joshua Baca, the spokesman for Americans for Affordable Products, in a statement on Trump's tax reform outline. Baca's group is the main anti-border tax advocacy group, made up of companies such as Walmart, Macy's and many others.
Retailers would face the greatest risks under the border adjustment plan, which would aim to tax companies based on the destination of their sales. The plan would work by excluding exports from taxable income but preventing companies from deducting export sales from their taxable income. That would in effect place a tax on imports.
Oil refineries, such as those owned by Koch Industries, would also stand to lose. Koch-affiliated groups such as Americans for Prosperity, a major opponent of border-adjustment, praised Wednesday's plan.
But although the border adjustment was excluded from Wednesday's one-page tax reform outline, it does not mean that the White House is ready to totally rule it out.
Previewing the plan in an interview hosted by The Hill newspaper Wednesday morning, Treasury Secretary Steven Mnuchin commented on the border adjustment, saying that "there are many aspects of it we like."
"We don't think it works in its current form, and we're going to continue to have discussions with them about revisions that they will consider," Mnuchin said, referring to House Republicans.
House GOP leaders acknowledge that the plan needs work and haven't given up on it.
Speaking at a conference hosted by the law firm BakerHostetler Wednesday morning, House Speaker Paul Ryan said that the border adjustment "needs to be modified" and said that the U.S. needs the most internationally competitive system possible.
Asked on the sidelines of the conference if Trump might revisit the border adjustment, House Majority Leader Kevin McCarthy said that if "there's an opening, we'll all walk through."
"And remember: Article I, section 7 of the Constitution — all tax reform starts in the House," he added.
Speaking in an interview on MSNBC, House Ways and Means Committee Chairman Kevin Brady reiterated that he will continue to back the idea. "Somehow — I think it needs work — we need to have equal taxation in the U.S. of products, whether they're foreign or made in America, just as our competitors do," Brady said.
House Republicans introduced the border adjustment as a way to eliminate the incentives that businesses face to try to move their corporate headquarters overseas or game the tax code by shifting income into low-tax jurisdictions.
But it is attractive for another reason, namely that it would raise about $1 trillion over 10 years. That revenue could help offset the cost of lower tax rates if Congress aims to ensure that tax reform does not add to the deficit.
Although many Republicans would be willing to cut taxes and add to the deficit, one reason that leadership might want to make sure that the tax reform is revenue-neutral is that it would ease the process of passing legislation through reconciliation, the special budget procedure that allows for bills to pass with only a simple majority in the Senate. Ryan said Wednesday that reconciliation was still the plan for tax reform.
If that indeed is the path forward, the Trump administration will have to find revenue-raisers, and the border-adjusted tax will be an option. The Committee for a Responsible Federal Budget on Wednesday published a rough estimate that Trump's outline would cut revenue by $3 trillion to $7 trillion over a decade, a massive shortfall in terms of finding tax breaks to eliminate.