Heck on the border
Tax ‘adjustment’ is needed to keep companies here, but how to do it isn’t clear
There’s change coming on the border. Republicans on the House Ways and Means Committee are working to make Speaker Paul Ryan’s tax reform scheme palatable enough to sell to a cranky chamber. It’s a high wall to climb over.
Republican leaders say the “border adjustment tax” is necessary to keep U.S. companies from relocating their headquarters overseas to qualify for a tax break in another country. But more than $1 trillion in tax revenues are needed to enable the proposed overall lower tax rates. The rankand-file Republicans aren’t so eager to embrace the scheme.
The way the proposed border tax is currently being structured is that it would apply only to goods produced abroad and sold in the United States. Exports would be exempt. The tax could be steep, as high as 20 percent. The tax, like all taxes, will be paid by consumers. Sen. Tom Cotton of Arkansas, a Republican, says that “what all of this would really amount to is a 20 percent tax on imports.” Lots of inexpensive goods middle-class families count on are made somewhere else.
Rep. Kevin Brady of Texas, chairman of the Ways and Means Committee, says he’s trying to come up with a formula that will satisfy Republicans in the House. But the Senate is a different place, and there may not be a single Republican on board. State governments will likely rebel, too. A new report by the Koch-backed Freedom Partners and Americans for Prosperity warn that the tax would be a particular financial hardship in 10 specific states, seven of which voted for President Donald Trump. Georgia, Kentucky, Louisiana, Michigan, South Carolina, Tennessee and Texas, all Trump strongholds, rely heavily on imports. California, New Jersey and Illinois would feel intense pain, too.
Mr. Trump, who understands why U.S. companies must be persuaded not to abandon America to avoid America’s high corporate tax rate, among the highest in the world, has not yet taken a firm stand on the border tax. But he seems to prefer reform of some kind to keep companies here. Some of his White House economic advisers favor the border tax, others don’t. The fighting over this will be fierce.
Speaker Paul Ryan, facing a wave of anger and angst over the failure to repeal Obamacare, must find a way to build Republican support while preventing bolt and buck among conservatives of the Freedom Caucus, lest tax reform share a lonely grave with repeal and replace.