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Brady Working on Details of Border-Adjustable Tax Plan

Posted on April 5, 2017 by Dylan F. MorosesStephen K. Cooper

Discussions continue among taxwriters and with Trump administration officials on how to design the House GOP's border-adjustable tax proposal to encourage companies to relocate their manufacturing operations to the United States, according to House Ways and Means Committee Chair Kevin Brady, R-Texas.

The controversial tax proposal, which Brady previously said would face significant changes, has drawn both criticism and praise from competing industry groups while lawmakers work to translate their comprehensive tax reform blueprint into legislation. 

Brady told reporters March 30 that members are meeting daily to focus on the design and transition period for the border-adjustable tax. "No decisions yet" on lowering the proposal's 20 percent tax on imports, he said, adding that his goal is to ensure that businesses "that have contracts in dollar denominated currencies" have a long enough transition period to make decisions.

The White House is looking to enact tax reform legislation by Congress's August recess, and Brady said his plan is to complete action in his committee by this spring. In addition to the border-adjustable tax, Ways and Means Republicans are also reviewing tax rates for corporations and small businesses and passthroughs in the blueprint.

Brady has met with Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn on tax reform, but the White House has sent mixed signals on the status of its tax plan. White House press secretary Sean Spicer said March 30 that Trump met with Mnuchin, Cohn, and several other economic advisers that morning to consider their options for tax reform, but that the administration was still at "the first stages of the process," just now talking to lawmakers, policy groups, businesses, and industry groups. 

Spicer also said that the decision on whether tax reform will be revenue neutral will occur as the plan is developed. Spicer's comments appeared to be at odds with the administration's statements February 22 that their tax reform plan was almost finalized and would be released in a couple weeks.

No Universal Support

GOP lawmakers were split on support for the border-adjustable tax plan.

Ways and Means Committee member Tom Rice, R-S.C., maintained that a border-adjustable tax is an "essential component" to making American goods and services competitive with those from other countries that have similar tax policies in place. "Historically, we were in such an advanced position that we could accept that, but we're not anymore. We're going to have to have border adjustment in some form, in my opinion," Rice said.

Rice noted some precedent for exempting financial service companies, but he said he was unaware of any discussions to incorporate a similar carveout in the GOP plan. "I would rather see us move to a little different version of border adjustment than we are right now. We've got VATs and other things that are being discussed, [but] there are no specifics," he said.

But Sen. David Perdue, R-Ga., said Brady should abandon the border-adjustable tax altogether to pay for tax cuts to boost the economy. He told reporters there is "no iteration" of the provision he would support.

Instead, Perdue said he favors reducing the statutory corporate tax rate from 35 percent to somewhere in the 20 percent range and eliminating "corporate welfare." He added, "Individual tax code simplification is something the president has talked about for months, and lastly the elimination of the repatriation tax. Those three things will boost the economy."

Even lowering the border-adjustable tax rate below 20 percent would not make Perdue change his mind. "It has nothing to do with rates. It's putting a consumption tax on top of an income tax. When that happened in Europe, the size of their federal governments grew about two-thirds. This is not necessary," he said.

Democrats See No Action

Two Senate Finance Committee Democrats said they've seen no real action on tax reform in the Senate.

Committee members Benjamin L. Cardin, D-Md., and Thomas R. Carper, D-Del., told Tax Analysts they were not aware of any ongoing discussions among committee members, Republican or Democrat, although Carper suggested staff-level talks could be taking place.

Cardin said the border-adjustment tax is a provision he supports, but not within an income-based tax system. "You can't do it through the income tax code" and have competitive tax rates, Cardin said. He said his consumption tax proposal introduced in 2016 is a better option.

"I think you have to bring other revenues in. There's two sources of revenue you could bring in: there's consumption revenues, or you can bring in energy revenues," Cardin said.

Revenue considerations also were cited by House Speaker Paul D. Ryan, R-Wis., who told reporters tax reform is more difficult while the Affordable Care Act remains in place.

"If we repeal the Obamacare taxes, then that is a revenue baseline that we don't have to put into tax reform," Ryan told reporters during a weekly press briefing on March 30, adding, "If we don't repeal the Obamacare taxes, it is my position that we're just going to have to leave those taxes over there with Obamacare and reform the rest of the IRS tax code."

Jonathan Curry contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and Dylan F. Moroses (@DMoroses3244) on Twitter for real-time updates.