Groups backed by the Koch brothers are engaging in a new line of attack against the House Republican import tax proposal, saying it could increase total business taxes in some states by a multiple of four.
A new report from Americans for Prosperity and Freedom Partners released Thursday details the potential state-by-state effects of the tax plan. In one possible scenario in which the 20 percent tax on imported goods became reality, for example, it would mean $1.1 billion in taxes on New Hampshire’s current imports, nearly five times the $236 million in all business income tax paid last year.
By providing numbers on the effects of the tax on every state, the groups are providing ammunition for opponents of the border-adjusted tax hoping to sway lawmakers against it. House leadership, however, would challenge the assumptions of the analysis.
“Lawmakers should consider the vital role of importers in their states, and ask themselves whether they are willing to put so much at risk just as state and local economies are starting to turn the corner,” said Freedom Partners Vice President of Policy Nathan Nascimento.
Both groups back free-market ideas and favor tax reform, but oppose the import tax included in the House GOP plan. Koch Industries owns refineries, one of the industries most opposed to the idea because it would impose taxes on crude oil bought overseas.
House Republicans have proposed taxing imports as part of a broader corporate rate-cutting reform that would tax goods based on where they are sold. In the plan, companies would no longer be allowed to deduct the cost of imported goods and services, but would no longer pay any taxes on revenues from exports. In today’s system, U.S. companies are taxed on all profits, whether they are earned in the U.S. or abroad.
Advocates of the plan assert that it wouldn’t hurt importing industries, because the dollar would appreciate in response. Businesses buying good overseas would thus pay the tax but do so with dollars that have proportionately greater purchasing power.
The analysis released Thursday does assume that the dollar would appreciate, but only enough to half offset the border-adjustment tax.
As a result, the analysis shows, some states would see more taxes just on imported goods than they currently do on all business income, assuming that they don’t import less.
For instance, Louisiana would face $5.7 billion in taxes on its current imports, up from $1.6 billion in business income taxes. For Montana, the import taxes would be 321 percent of current business taxes.
Michigan, where imports are more than a quarter of state economic output, would see $12.2 billion in taxes on imports, compared to $5 billion of business income taxes currently paid.
While a number of Republicans, especially in the Senate, have indicated skepticism of the border-adjusted tax, tax writers in the House say they are still committed to it. Ways and Means Committee Chairman Kevin Brady said that he is planning modifications to the border adjustment to make it more palatable to importers of raw goods.
While such modifications might appease some congressional Republicans, Freedom Partners opposes any phase-ins or carve-outs of the border adjustment, and the group aims simply to kill it.
