Jul 27, 2017

Republicans take border adjustment tax off the table


The House Republicans' border adjustment tax (BAT) is, finally, as good as dead. The Republican leaders in charge of tax reform have, for the first time, admitted in a joint statement that a centerpiece of the House GOP tax plan — the idea to raise some $1 trillion over 10 years by hiking taxes of imports and cutting them on exports — is politically unfeasible.

Here's the key sentence, from a statement released today by the "Big Six" lawmakers leading the tax reform process: "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."

Why this matters: Conservative lawmakers and outside groups like the Koch network needed to hear that BAT was dead before they agree to put their full political and financial weight behind tax reform over the summer.

But, as for the rest of the joint statement, it's a total letdown and reveals the scope of disagreements still remaining between House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady.

The tax "statement" is a series of platitudes, extremely light on specifics. It commits to lower taxes, but, unlike the plan Trump released in April, it doesn't offer specific tax rates. The statement is also silent on how to pay for the tax cuts, though it does suggest that the group wants the tax reform not to add to the deficit, by saying it places a "priority on permanence." (Many conservatives argue the President should just cut taxes without worrying about blowing out the budget deficit in the short term.)

The most substantive paragraph: "The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas. And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base."

A source close to leadership texts his reaction to the joint statement (summing up the sentiment I've heard from several prominent tax lobbyists in Washington): "That tax statement is amazing. Other than BAT funeral, it has less substance than the April document...This town spent literally 24 hours get[ting] lathered up over this s---."

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