Republican lawmakers who have committed to passing a comprehensive tax overhaul next year already have a problem on their hands: a controversial provision on imports will be needed to offset popular corporate tax reductions.
In the past week, a swell of industry opposition to the GOP “border adjustment” plan has emerged, spearheaded by Koch Industries. The legislative model would tax imports while exempting exports as part of the new territorial business tax system.
Supporters say implementing this type of system would help encourage investment in the United States. It also serves as a central policy tool in the GOP’s overall strategy to prevent U.S. companies from setting up shop overseas or outsourcing employment.
Equally as important, the plan would generate revenue that could help offset essential elements of the GOP tax plan, such as lowering the corporate tax rate. A July analysis from the center-right Tax Foundation estimated that the border adjusted business tax would bring in $1 trillion over 10 years.
Phil English, a former Republican House member who sat on the Ways and Means Committee and supports the import tax, said in an interview that the issue will be “front and center” next year.
The argument in favor of border adjustments from English and other supporters is simple. “It’s a major source of revenue,” said English, who now works as a government affairs adviser for the Washington-based law firm Arent Fox LLP.
“And if this system is not border adjustable, I do not believe it’s going to have the revenue to, with reasonable deficit projections, get the rates down and also provide for expensing,” he said in an interview Tuesday.
Republicans have pledged that their tax overhaul package will include a major cut to the corporate rate and allow companies to fully expense their capital investments. Both cost money.
Byron Dorgan, a former Democratic senator who works with English at Arent Fox, agreed in a separate interview that the border adjustment would “potentially raise a fair amount of money.”
“But that’s not something that’s going to run through the Congress like a hot knife through butter,” Dorgan said. “That’s going to be very controversial.”
Koch Industries’ opposition to the import tax stems from the free-market libertarian principles of the conglomerate’s leaders, billionaire brothers Charles and David Koch. The company also acknowledged that it would benefit in the short term if the tax were implemented.
Then there is the retail industry, which has immense influence in Washington and is heavily dependent on imports of manufactured goods and keeping consumer prices low. Because of that, they’re already joining Koch Industries in calling for taxwriters to ditch the plan.
On Tuesday, the Retail Industry Leaders of America said said in online promotion that lawmakers want to ruin Christmas, and that the provision should go “right on the naughty list.”
“Border adjustability would levy higher taxes on everyday items like food, coffee, toys and even cell phones,” RILA said.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) is maintaining his commitment to the proposal. On Wednesday, he told reporters that he’ll continue pushing for it, even if Senate taxwriters join the industry in resisting it. Brady was flanked by other Republican Ways and Means Committee members, who are meeting for a policy retreat on Capitol Hill this week.
English said he expects those same lawmakers to project a unified approach on the import tax, even as business groups rally against it.
“I think there will be many organizations coming out against different aspects of this tax proposal,” English said in Tuesday’s interview. “But I also believe there’s a great deal of solidarity among taxwriters in the House.”