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Border Adjustability Hearings Should Wait, Hatch Says

Posted on February 17, 2017 by Dylan F. MorosesAsha Glover

Senators calling for hearings on the House GOP's controversial border-adjustable tax proposal will have to wait until legislative language is released, Senate Finance Committee Chair Orrin G. Hatch, R-Utah, told reporters February 16.

"When they firm up their proposal, we'll have to hold hearings on it, but they haven't firmed it up yet," Hatch said in response to calls for hearings on the proposal. He added that he is slightly concerned by the border adjustability tax provisions. "They're talking specifically about it, but I don't think they have it in writing yet. If they do, I haven't seen it," he said.

The prospects for Senate Finance hearings on the provision -- which was included in the House's "A Better Way" tax reform blueprint -- are all but certain, committee member Pat Roberts, R-Kan., told reporters. "I don't think there's any question on whether we'll have hearings on it. We need to. I'm not in the position [to comment] right now, but we've asked a lot of folks to weigh in, and they have, on what would happen to agriculture with border adjustments," Roberts said.

Finance member Tim Scott, R-S.C., told reporters that that he supports the idea of budget-neutral tax reform but has concerns about border adjustability taxes, saying it is likely that American consumers would wind up paying higher prices. "We've got to see how it actually works," Scott said, adding that he met with retailers February 15 who estimated a 200 to 300 percent increase in their tax burden with a border adjustability tax.

Finance member Benjamin L. Cardin, D-Md., told Tax Analysts that he has several concerns about the House Republican proposal. "I have serious questions whether it will be recognized under the WTO as border adjustable, and secondly, I don't think the numbers add up. I think it would create deficits," Cardin said. He added that the plan included in the proposal to eliminate the deduction of net interest expenses worries leasing companies in his state.

Cardin suggested that other Senate Finance Committee members have priorities for tax reform that may not align with the House Republican blueprint, which could lead to hearings with a broader focus and a different proposal originating in the upper chamber.

"They're very anxious to reduce business taxes, and they want to have an open debate about it," Cardin said. "I don't see a lot [of committee members] embracing what's being done in the House. I think they would rather do it in a more direct way. You can try to do it within the income tax, but it's difficult. Or you look for other revenue such as consumption or carbon with revenue neutrality, so not raising taxes. There's been discussions taking place about that."

Finance member Patrick J. Toomey, R-Pa., said there are discussions about holding a hearing on key reforms included in the House Republican blueprint, but added that other tax reform options are also being explored.

Other Senate Republicans have been more critical of the provision. Sen. John Boozman of Arkansas told reporters that because so many products sold by retailers are manufactured overseas, the border-adjustable tax could have a negative effect on consumers. He added that he had yet to speak to Hatch, but had heard similar concerns from fellow senators.

Sen. Tom Cotton of Arkansas in a February 15 floor speech said he was "not at all convinced" that border-adjusting taxes was the best way to increase the amount of headquarters and factories in the United States and keep jobs from going overseas. "It's estimated that this one change alone would produce something like $100 billion a year in additional tax revenue," he said. "That's a lot of money and someone's got to pay for it, and I'll tell you exactly who's going to pay: working Americans who have been struggling for decades."

Cotton said imposing a tax on imports is "a tax on things working folk buy every single day," adding, "Why would we make the stuff they get at Wal-Mart more expensive?"

Cotton further criticized the provision as a "theory wrapped in speculation inside a guess. Nobody knows for sure what will happen. No one can know for sure because our currency markets fluctuate daily based on millions of decisions and events."

Ryan, Brady Not Worried

Despite the complaints, House Speaker Paul D. Ryan, R-Wis., said he does not expect Senate opposition to the border adjustment provision to derail tax reform efforts.

"We are doing tax reform. Tax reform is going to happen," Ryan said during a weekly press briefing February 16. "You know why tax reform is going to happen? Because it has to happen. America has the worst tax code in the industrialized world. It is killing economic growth. It is driving companies to become foreign companies.

"It's going to be up, it's going to be down, it's going to be on, it's going to be off," he continued.

House Ways and Means Committee Chair Kevin Brady, R-Texas, said in response to Cotton's speech that House Republicans "welcome these kinds of questions" and that they are working with and listening to their colleagues. "We want to address their concerns about the provision, but we also make it very clear we're not going forward with the tax code that favors foreign products over U.S. products or drives jobs overseas, which is what currently occurs without border adjustability," Brady told reporters.

Stephen Cooper contributed to this article.

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