WASHINGTON — In a race to reboot their legislative agenda, Republicans in Congress have turned to tax reform as fertile ground for a big, and much needed, victory.
But there’s already a simmering feud among key GOP lawmakers over what provisions should be included in any corporate tax overhaul — a spat that some fear could lead to a replay of last month’s implosion over the Republican Obamacare replacement plan.
In the House, Republican leaders say any tax reform bill needs to include what they call "border adjustment" and critics call a new levy on imported goods. The goal is to spur more domestic manufacturing and remove an incentive for companies to relocate headquarters overseas.
In the Senate, many Republicans think such a "border adjustment tax" is a terrible idea that could drive up consumer prices and spark a trade war, hurting American consumers and workers alike.
In the middle is President Trump. The president’s top aides are also apparently divided on border adjustment, and Trump has sent somewhat conflicting signals on the proposal.
“You have this White House that has been a bit split (between) folks who are for it and folks who are against,” said Rep. Pat Tiberi, R-Ohio, a member of the Ways and Means Committee, which is crafting the House GOP plan. “And we haven’t heard from the president yet, and that’s really important.”
Rep. Kevin Brady of Texas, chairman of the Ways and Means Committee, has been pitching border adjustment to business and advocacy groups since Election Day.
"Under today's tax code a made-in-America product is at a tax disadvantage here in America, and a tax disadvantage overseas, " Brady said Tuesday at a roundtable with regional reporters. "So a made-in-America product today loses in both directions."
His plan would lower the corporate income tax rate to 20% and base taxes on where a product is sold, rather than where it is made. Today, an American company that sells a product overseas pays taxes to the United States on the sale, but most global competitors remove their domestic value-added taxes from products that are exported here.
Under border adjustment, American companies would pay tax on the sale of imported products, but not on products sold overseas. Brady said that would remove any tax incentive to move manufacturing or research operations overseas and make it easier for American exporters to compete globally.
But retailers and other businesses that rely on imported goods say such a border tax could force them to raise prices dramatically, with American consumers taking the financial hit. They have formed a coalition — called Americans for Affordable Products — and launched an all-out campaign to kill the proposal.
“The Border Adjustment Tax … slaps outrageous taxes on imported goods — like clothing, food, medicine, and gasoline — products Americans rely on every day,” the coalition says on its website. “Under the BAT, a U.S. large company may virtually pay no corporate taxes simply because it exports products, while another American company delivering affordable essentials to their consumers will be faced with crushing taxes.”
That fierce opposition is also simmering in the Senate, where skeptical Republicans are quietly urging the Trump administration and House Republicans to back off the BAT. They say any tax reform bill that includes the House border adjustment plan will never pass the Senate, so a protracted debate over the idea is a waste of precious legislative time.
“Let’s get on with it,” Sen. Rob Portman, R-Ohio, a member of the Senate’s tax-writing committee, said last week during an interview on CNBC.
“Let’s go for a more traditional approach at this point and see if we can build consensus around that,” Portman said. “That would be lowering the rates, broadening the base, and doing the stuff we’ve talked about for a long time.”
Complicating the dispute is that border adjustment helps provide $1.1 trillion in new revenue over the coming decade, which the House plan uses to offset lost revenue from lowering the top corporate rate to 20%.
And border adjustment is just one of several elements that could make the House Republican plan a tough sell in the Senate, where Republicans hold 52 seats. The House plan also significantly increases the standard deduction while eliminating many existing deductions in the individual income tax code, including the deduction for state and local taxes. That change could cost the plan votes from senators in states that benefit from those deductions.
So far, Brady has refused to drop his border adjustment tax, which is also embraced by House Speaker Paul Ryan, R-Wis. But Brady has said he’s willing to revise the plan by creating a “deliberate transition period” that would give companies time to bring manufacturing and supply chains back to the U.S.
“One of the lessons learned from the health care process is that the sooner that President Trump and House and Senate Republicans unify behind a tax plan and an approach, the better,” Brady said last week.
Another lesson from the health care debacle: Republicans need to prove they can legislate — and quickly. But whether tax reform will lead to another self-inflicted defeat, or a sweeping victory, is unclear.
“Tax reform is a big deal for Republicans,” said David French, senior vice president for government relations at the National Retail Federation. “It’s a big deal for the economy. If they can get it done right, it’s a win. And this White House and this Congress needs a win.”
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