Republicans aim to coax Trump toward
House trade tax plan
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[December 01, 2016]
By David Morgan
WASHINGTON (Reuters) - Republicans in the
U.S. Congress hope to convince President-elect Donald Trump to support
an untested strategy of using the tax code to promote exports while
slashing corporate taxes, framing it as a way to fulfill his campaign
promises to restore blue-collar jobs.
The plan would be one way to help Republican lawmakers reconcile their
long-standing goal of tax cuts with the often populist campaign rhetoric
of Trump, who has attacked the North American Free Trade Agreement
(NAFTA) and other trade deals as bad for U.S. workers.
Critics say it risks running afoul of global trade rules and increasing
costs for U.S. consumers. Analysts also say that any export gains could
be short-lived if the strategy causes the dollar to strengthen, wiping
out any price advantage for U.S. products in international markets.
It is likely to undergo months of debate as part of a larger package of
proposals offered in congressional Republicans’ “A Better Way” economic
plan, but at least one Trump adviser already seems to have a favorable
view of the export-focused "border adjustability" strategy.
"If we have a border adjustable tax system, that can solve a lot of
these trade issues that Trump is talking about," economic analyst and
Trump adviser Stephen Moore said in an interview.
“You’re going to tax what’s imported and not going to tax what’s
exported. So we’re going to reduce the trade deficit and we’re going to
have more companies come in here,” Moore said.
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Border adjustability's details are not clearly explained in a summary of
the “A Better Way” plan from House Speaker Paul Ryan and House tax
committee chairman Kevin Brady. But the Tax Foundation, a think tank
that closely studies business tax policy, said the strategy would be
implemented by making revenue from sales to non-U.S. residents
non-taxable, while preventing importers from deducting the cost of goods
bought from non-residents.
Brady told Reuters that border adjustability would "virtually eliminate"
any tax incentive for U.S. companies to move operations overseas and
encourage foreign investment to return to the United States.
"We’ve got a great argument, I think,” he said.
Steven Mnuchin, Trump's pick for U.S. Treasury secretary and co-author
of the president-elect’s tax plan, described tax reform on Wednesday as
“something that happens absolutely within the first 90 days of this
presidency.” Wilbur Ross, Trump's nominee for commerce secretary, did
not mention tax policy directly but said the Trump administration’s aim
would be to increase exports in part by getting rid of “non-tariff”
barriers.
The perceived winners under a border adjustability approach would
include U.S. manufacturers that export heavily, while large-volume
importers, such as U.S. retailers, could be hurt. That distinction was
already dividing corporate lobbying groups.
While retailers support an overhaul of the tax code, "the tax on imports
proposed in the House blueprint is cause for concern for retailers,"
said Christin Fernandez, spokeswoman for the Retail Industry Leaders
Association, a Washington group.
The industry group's members include Wal Mart Stores Inc, Home Depot Inc
and Target Corp.
Some version of border adjustability could attract support from
Democrats. Senator Ben Cardin, a Maryland Democrat who sits on the
Senate Finance Committee and the panel’s tax subcommittee, said he
strongly favors the idea. But he called the emerging House plan "very,
very questionable" because it would use tax on corporate income rather
than a consumption tax.
Tax lawyers and other experts have said such an approach risks violating
long-standing world trade rules that allow countries to adjust their
trading positions through indirect taxes, such as a sales tax, but not
with direct taxes like the U.S. corporate tax. "It would lead to
uncertainty on how it would be treated internationally. And that’s bad
for business," Cardin told Reuters.
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![](../images/120116pics/news_v39.jpg)
President-elect Donald Trump in Manhattan, New York, U.S., November
9, 2016. REUTERS/Carlo Allegri
![](http://archives.lincolndailynews.com/2016/Dec/01/images/ads/current/stclara_christmas_LDA_111914.png)
Trump's transition team and other Trump advisors on the economy did
not respond to requests for comment.
Brady has said border adjustability would pass muster with the World
Trade Organization, which polices global trade. The WTO declined to
comment on the plan.
TRADE WORRIES
Border adjustability is only one component of the "A Better Way"
blueprint. It would also slash the corporate income tax rate to 20
percent from a top rate of 35 percent; repeal the corporate
alternative minimum tax; and let businesses write off capital
investments immediately.
Altogether, the House Republicans' corporate tax plan would reduce
U.S. corporate tax revenues by about $891 billion over 10 years,
estimated the non-partisan Tax Policy Center, perpetuating a
long-term decline in the corporate tax take.
Combined with an equally ambitious package of individual income tax
cut proposals put forward in the "Better Way" package, the
Republican plan would boost the federal deficit by about $3.7
trillion over a decade, the center estimated.
Advocates of border adjustability note that U.S. trading partners
including China use value-added taxes to favor exports over imports
and say the House proposal would level the playing field for U.S.
companies.
But some tax experts have questioned how effective it would be. Kyle
Pomerleau and Stephen Entin of the Tax Foundation wrote in June that
the increased demand abroad for cheaper U.S.-made goods would boost
the dollar's value and cancel out gains for exporters.
![](http://archives.lincolndailynews.com/2016/Dec/01/images/ads/current/castlemanor_lda_051916.png)
Still, supporters of the plan believe it could win the favor of the
president-elect, who has railed against U.S. companies that have
shifted production abroad and scaled back U.S. operations. Trump has
already ruled out U.S. participation in the ambitious Trans-Pacific
Partnership (TPP) trade deal and has vowed to renegotiate or quit
NAFTA.
"When Trump understands how the blueprint works, particularly the
border adjustability provision, which will create a huge incentive
to make stuff in the United States, I think he'll be delirious,"
said Ken Kies, one of Washington's most influential corporate tax
lobbyists.
Kies represents major firms including Microsoft Corp, General
Electric Co, Pfizer Inc and Caterpillar Inc.
Comparison of corporate tax plan: http://tmsnrt.rs/2fE6MvS
(Editing by Kevin Drawbaugh and Stuart Grudgings)
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