House Speaker Paul Ryan, R-Wis., thinks he has a simple way to raise roughly $1 trillion to pay for his long-sought overhaul of the tax code, but many businesses — and even some Republican lawmakers — are wary of his plan to change how the U.S. treats imports and exports.
Ryan first floated “border adjustability” in the “better way” plan he unveiled last summer outlining how the GOP would do everything from repealing and replacing the Affordable Care Act to roll back federal regulations to revamping the tax code.
Republicans dutifully promoted it during their annual retreat in Philadelphia last month, but some now question how the little-understood provision would work and what ramifications it would have on trade and the economy.
Perhaps none is more out front than Georgia Sen. David Perdue — former CEO of Reebok.
“The border adjustment tax is a regressive tax, it hammers low-income and middle-income consumers, it doesn’t foster growth,” Perdue said last week at the Yahoo Finance Summit. “Since all imports would be taxed, the clear effect … is an increase in consumer prices,” he wrote in “dear colleague” letter dated Wednesday.
Senate Majority Whip John Cornyn, R-Texas, Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Sen. Mike Lee, R-Utah, have all said they have questions.
“We don’t have definitive answers to any of those questions at this particular point,” Hatch recently told the U.S. Chamber of Commerce. “And without them, I don’t think I can give definitive positions.”
On the House side, Ohio Republicans Jim Jordan, Jim Renacci and Pat Tiberi have made the concerns public and at one point President Trump dismissed it as “too complicated.”
Americans for Affordable Products, a coalition of retailers, has sprung up to specifically target border adjustment taxes, which would exempt U.S. exports from taxes while increasing levies on imports. Current U.S. law taxes companies on where they manufacture products. Critics say such a change would run afoul of World Trade Organization rules.
Privately House Republicans concede they don’t want to have to vote on a controversial proposal that the Senate may not even consider and that the White House might not support.
To be sure, many businesses are on board with Ryan’s plan. The corporate world is essentially split on the subject, with net importers opposing it and net exporters favoring it.
The Trump administration has also sent mixed signals on the issue.
Last week, press secretary Sean Spicer said the White House will unveil its comprehensive plan for tax reform in two or three weeks. While Ryan has stepped up his push for the proposal, most of Capitol Hill is waiting to see where Trump lands on the subject.
His support could spur legislative action on it while an out-right rejection could kill the plan before a bill gets moving.
If the prevailing winds begin blowing against border adjustability, it is unclear how the GOP would pay for the reduction in the corporate tax rate, which it wants to drop to 20 percent, or other expensive tax provision changes it seeks.
Fiscal conservatives, particularly in the House, would likely balk at a tax package that would add to the deficit. Yet, the White House and some Senate Republicans are hinting that a “revenue-neutral” plan is not an absolute necessity.
