Tax Leaders Shelve Effort to Impose Border Adjustable Tax

House Speaker Paul Ryan (R-Wis.). (Rob Kunzig/Morning Consult)

Lawmakers and White House officials who have been developing the Republican tax reform plan said Thursday that they’re setting aside a key element of the House GOP tax reform “blueprint” that would have imposed a tax on import income while exempting exports.

The agreement to shelve the plan, known as the border adjustment tax, comes after over a year of controversy surrounding the concept. Supporters of the tax, led by House Speaker Paul Ryan (R-Wis.) and Ways and Means Committee Chairman Kevin Brady (R-Texas), argued that implementing border adjustability would have advantaged U.S. manufacturers — but they faced resistance from conservative groups and the retail industry, which lobbied against the proposal because of worries about new import taxes.

“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,” the joint statement said. In addition to Brady and Ryan, Senate Finance Committee Chairman Orrin Hatch (R-Utah), Senate Majority Leader Mitch McConnell (R-Ky.), National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin signed the statement.

According to the statement, the goal of the current tax reform discussions is to come up with 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.”

Speaking to reporters after the joint statement’s release, Brady said tax writers are exploring a “viable alternative” to border adjustment. That includes a discussion, slated for August, about the revenue effects of removing the BAT and how it could affect proposed cuts to tax rates. The right-leaning Tax Foundation has estimated border adjustment could bring in $1.1 trillion over a decade.

“We will just continue to work toward lowering those rates,” Brady said.

Americans for Affordable Products, which is made up of retail industry groups and companies, applauded the decision on the BAT in a Thursday statement.

“The nearly 600 members of the Americans for Affordable Products coalition are very pleased to see the released tax reform framework representing the viewpoints of the White House and majority party in the U.S. House and Senate has finally and definitively taken the misguided Border Adjustment Tax off the table,” the group said in an emailed statement.

The American Made Coalition, the most prominent group supporting the BAT, did not address the BAT’s omission in a Thursday statement. Instead, the group acknowledged that congressional and administration officials “have unified around a shared vision for comprehensive tax reform that will generate sustained economic growth,” and backed the commitment to lower the corporate tax rate and the proposed transition to a territorial tax system.

The resolution of the border adjustability divide within Republican ranks means that the main obstacle ahead for Republican tax writers will likely be congressional Democrats, who have already begun comparing the tax reform process to the ongoing debate over repealing the Affordable Care Act.

“If Republicans continue this partisan process, they are doomed to repeat the same mistakes they have made trying to upend our health care system,” Rep. Richard Neal (Mass.), the top Democrat on Ways and Means, said in a statement Thursday.

Anna Gronewold contributed.

Morning Consult