House corporate tax shift causes uncertainty in state
Not all Republicans, businesses on board
From Gov. Scott Walker to a state business lobby, Wisconsin Republicans don’t know quite what to say about the House GOP proposal to replace the nation’s corporate income tax with a brand new system.
U.S. House Speaker Paul Ryan is championing this sweeping tax overhaul, which could advantage exports and disadvantage imports. That’s winning it applause from a coalition of manufacturers that includes firms like GE Healthcare and Caterpillar that have a heavy Wisconsin presence.
The proposal, supporters say, could eliminate a structural disadvantage that American manufacturers have compared to their foreign competitors and also lower the overall tax rate by eliminating the ability of corporations to shelter profits from U.S. taxes by keeping them overseas.
But any change that large has the potential to create losers as well as winners, and many retailers that rely on imported goods are eyeing the proposal with unease or outright fear. That’s left elected Republican leaders like U.S. Rep. Glenn Grothman from Sheboygan County cautious about how to handle it.
“It could have very dramatic effects both positive and negative,” said Grothman, who is trying to learn more about the proposal before staking out a position on it.
Larger GOP proposals like the repeal of Obamacare have drawn more headlines in recent weeks, while the complex House tax plan has stayed stuck in relative obscurity. But the plan is every bit as ambitious as the replacement of the Affordable Care Act.
It got a mention in Janesville on Friday when Jane Blain Gilbertson, the chief executive of retail chain Blain’s Farm and Fleet, asked Paul Ryan and Vice President Mike Pence about the proposal in a listening session with business owners. The Farm and Fleet CEO relayed concerns that the proposal could drive up the cost of goods and affect retailers such as Blain’s and their customers, according to George Steil Jr., a
Janesville lawyer who participated in the listening session.
The House plan would eliminate the nation’s 35% corporate income tax and replace it in most cases with a 20% tax that would focus for tax purposes on where products are going rather than where they are made. The system would also allow companies to write off the cost of new investments in plants and equipment in the year they were purchased rather than make them do so over many years.
Most prominently, companies would no longer pay taxes on their exports and overseas profits as they do now. But in another reversal of the current system, imports to the country would be taxed.
Border-adjusted tax
All that has led to the proposal — a border-adjusted tax — being described by some as a kind of tariff on foreign goods. That’s a description that many economists reject as wrongheaded. The legislation, they say, would bring American corporate taxes in line with most other industrialized countries and end the United States’ status as an outlier that taxes its own exports even though those exports will be taxed again by their destination countries.
“The rest of the world has consumption taxes, so when they make something in their country and they sell it overseas, they take the tax off of it. And then, when something comes in from overseas to their country, they tax it. We do the exact opposite,” Ryan said in a January interview. “If ... we make a Harley motorcycle in Milwaukee, we tax it. We tax it if it’s going to be ridden in Wisconsin, and we tax it if it’s going to be sold into Japan.”
The legislation — and Ryan — have been praised in a letter from 16 CEOs of top American manufacturers such as Caterpillar head Jim Umpleby and Jeffrey Immelt, the chairman and top executive of General Electric, the parent of GE Healthcare.
“A critical element of the House blueprint is the provision that ensures goods and services produced abroad face the same tax burden as those produced in the United States,” the letter reads. “This reform is consistent with the tax policies of nearly every other country in the world, and it would effectively end the ‘Made in America’ tax that creates an unfair advantage for foreign-based companies.”
Many economists think that the proposal wouldn’t permanently make exports cheaper abroad or make imports more expensive for American consumers. They say the proposal would in time raise the value of the American dollar and offset the other effects.
But that hasn’t reassured retailers such as Target and Best Buy, which oppose the legislation as part of a coalition of retailers.
All of this has left elected leaders cautious and wondering what happens if the proposal’s supporters are wrong.
“I’m not sure that economists can predict the appreciation in the dollar with that kind of certainty,” Grothman said.
For his part, Gov. Scott Walker said he strongly supports lowering the corporate tax rate. But he also stopped short of endorsing the larger tax overhaul within the House plan.
“We’re still looking at that,” he said.
Spokesmen for Wisconsin’s two U.S. senators, Republican Ron Johnson and Democrat Tammy Baldwin, offered no comment.
Even the state’s biggest business lobby, Wisconsin Manufacturers & Commerce, is hesitant.
“WMC members are united in their support for reducing the federal corporate tax rate,” said Scott Manley, the group’s head of lobbying. “However, we have members on both sides of the border adjustment tax issue — many would benefit from a lower tax burden, while others would see a tax increase. It is our hope that Congress is able to deliver meaningful tax relief for all employers.”
“It could have very dramatic effects both positive and negative.” U.S. REP GLENN GROTHMAN