Border adjustment is officially dead as part of Republicans’ tax plan.
Congressional Republican leadership and the Trump administration said Thursday afternoon that the idea of adjusting corporate taxes at the border won’t be part of their planned tax code overhaul, abandoning the idea in order to build momentum for the legislative effort.
“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,” the Republicans said.
The statement was issued jointly by the “Big Six” Republicans who have been meeting regularly in recent months to hammer out a unified GOP tax reform agenda.
Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn represent Trump in the talks. House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady represent the House, while Senate Majority Leader Mitch McConnell and Finance Committee Chairman Orrin Hatch speak for the Senate GOP.
Originally submitted as a concept by Ryan and Brady, the border adjustment was opposed by the retail industry, which mounted a major lobbying effort against it out of fear of higher taxes on imported goods. Excluding border adjustment, however, means that Republicans will need to replace the $1 trillion-plus it was expected to raise in revenue.
Taking it off the table also means that Republicans must find some other way to ease the pressures that U.S. companies face to move their headquarters to tax havens. Republicans “still have work to do” on that score, Brady acknowledged at a press conference Thursday.
While Thursday’s announcement resolved one major question surrounding tax reform, namely the fate of border adjustment, it left major questions unanswered.
For instance, the agreed-on principles did not set a target for individual or corporate tax rates. Nor did it identify any major tax breaks that might be eliminated to pay for lower rates. As a result, it is not clear that the corporate tax rate of 15 percent sought by President Trump is in reach, or even the 20 percent that Ryan had aimed for.
Nevertheless, the statement did hint that some of Ryan’s and Brady’s preferences have won out, at least in part. The plan will place a “priority on permanence,” according to the statement. House Republicans favor a permanent reform of the code to provide businesses with long-term planning certainty. Achieving that goal sets a heavy lift for Congress, though, because a bill permanently changing the tax code cannot add to the federal deficit, for parliamentary reasons.
Also, Republicans will aim to allow companies to write off as much new investment in the first year as possible. House Republicans favor “full expensing,” or allowing all investments to be deducted in the first year, rather than over many years according to a complicated schedule as is the case now. Brady suggested that full expensing could still be achievable.
Other major items, such as repealing the estate tax, were not addressed.
The plan for now is to allow the committees to write bills that will proceed through regular order, fleshing out the details of the tax reform, a marked contrast from the strategy Republicans have pursued on healthcare legislation.
Business groups such as the U.S. Chamber of Commerce praised the statement Thursday. The Retail Industry Leaders Association, one of the retail groups that fought against the border adjustment, said it was prepared to help advance legislation this fall.
Part of the motivation for releasing a bare-bones statement on tax reform principles this week was to give Republicans something to talk about during the August recess, when lawmakers are back in their home districts.
Brady told reporters Thursday that Republicans would hold an event Aug. 16 at the Reagan Ranch in Southern California to promote the tax reform effort.
