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White House Backing for House Border Adjustment Tax in Doubt

Posted on February 27, 2017 by Jonathan Curry

Less than 24 hours after President Trump gave fresh hope to advocates of the House Republicans' border-adjustable tax proposal, the president's leading man on tax reform has apparently splashed cold water on the idea.

At a private meeting February 24 with business executives in Washington, National Economic Council Director Gary Cohn supposedly said the White House does not support the House version of a border adjustment, a person in attendance told Axios.

Cohn's alleged statement comes on the heels of Trump telling Reuters on February 23 that some "form of tax on the border . . . could lead to a lot more jobs in the United States." White House press secretary Sean Spicer also defended the House GOP's proposal without outright endorsing it. 

Still unclear from Cohn's comments is whether the White House is ruling out a border-adjustable tax altogether, or if it plans to propose an alternate version. Trump has spoken frequently of a punitive "border tax" that bears more resemblance to a tariff, reiterating his pledge for one as recently as February 17 at a rally in Melbourne, Florida.

At the Conservative Political Action Conference in National Harbor, Maryland, February 24, Trump delivered remarks about the administration's position on tax reform that were too broad to be considered support for the House GOP blueprint.

"We are going to massively lower taxes on the middle class, reduce taxes on American business, and make our tax code more simple, and much more fair for everyone, including the people and the business," Trump said. He added that "we're going to make Obamacare much better." He did not offer policy details on any of these claims.

"The great puzzlement of Trump's campaign when he talked about applying a tax on imports was what he was talking about," Steven M. Rosenthal of the Urban-Brookings Tax Policy Center told Tax Analysts.

"What he could be saying is a tariff using the presidential authority to select specified industries to protect and specified countries to target and not something as sweeping as the border adjustment," Rosenthal said. Alternatively, Rosenthal suggested that Trump could be looking at only half of the border-adjustable tax equation: imports.

But if Trump's objective with border adjustments is trade- or protectionist-based, "then I think he is just talking about selective tariffs," Rosenthal said. If so, it would "make a lot of noise about something that didn't have a large scope," he said.

Scott Greenberg of the Tax Foundation said it's plausible that the White House could still be open to the idea of border adjustments but in a modified form. As a hypothetical example, he said the White House could propose a 20 percent corporate income tax with companies allowed to deduct only 50 percent of the cost of imported goods and services and exclude 50 percent of revenue from exports. "This would effectively apply the border adjustment at a rate of 10 percent on both imports and exports," Greenberg told Tax Analysts in an email.

But Greenberg said that such an approach would be a "conceptually weird thing to do: instead of moving from an origin-based tax to a destination-based tax (which is what you get with a full border adjustment), you'd end up with a tax that was a hybrid of the two approaches. But it's theoretically possible to do." The result would reduce the magnitude of the effect of the border tax adjustments by half, Greenberg said, although he added that since he expects currency adjustments to make it so that border adjustments have no effect, it would "be like reducing the magnitude of zero by half." Even so, such an approach could potentially be more politically palatable to importers who worry currency adjustments won't materialize as predicted, he said.