Feb 2, 2017

Border adjustment has a Senate problem

J. Scott Applewhite / AP

Paul Ryan's $1.2 trillion border adjustment tax plan to hike import taxes has a Senate passage problem. Both sides of the fight have gamed it out the same way: They think Ryan and the House Ways and Means chair Kevin Brady can probably squeeze the plan through the House, but the Senate is a different ball game.

Even if Trump loudly supports border adjustability — and that's a big if — he'll have a tough time convincing Senators who fear him far less than House members do. And senators from states home to big box retailers have compelling reasons to oppose border adjustability.

(Here's our Facts Matter on border adjustment.)

GOP Senators being targeted by opponents of border adjustability:

  • Arkansas Senators Tom Cotton and John Boozman (Walmart)
  • Georgia Senator Johnny Isakson (Home Depot)
  • North Carolina Senators Richard Burr and Thom Tillis (Lowe's)

GOP Senators who have already said they don't like border adjustability:

  • Senator David Perdue of Georgia is a former CEO of Dollar General who has a deep understanding of the effects of border adjustment on retail. He said on CNBC: "In my view, it's regressive. It just hammers low-income and middle-income consumers, and it really doesn't foster growth."
  • Senator Mike Lee of Utah told Koch network donors: "This ends up becoming a VAT-like substance and I think it would end up having a lot of the negative characteristics of both a VAT and a tariff ... I really don't like it."
  • Senator John Cornyn of Texas is known to be concerned about border adjustment's effect on gasoline prices. Last week he tweeted: "Many unanswered questions about proposed "border adjustment" tax."

What's next: The biggest question troubling operators on both sides of this fight is whether Trump will weigh in forcefully on behalf of border adjustment. We know that his chief strategist Steve Bannon is on board and believes it's an American nationalist tax. And the House GOP — supported by an outside coalition — is wisely making their pitch in nationalist (read: Trumpian) terms. Our source, who favors border adjustment, adds: "It is safe to say that the retail giants and the Koch brothers have jumped out to a head-start in this debate, but the political environment is tailor-made for the manufacturers and a strong 'American jobs' message."

The bottom line: Tax reform will likely be done through reconciliation, which requires a majority vote, so Republicans can only afford to lose two senators on border adjustability. But both sides see a path for border adjustment becoming a reality; otherwise they wouldn't be engaging so heavily in this fight.

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