Tax Analysts Blog

Trump's Mixed Signals Muddy the Future of House Plan

 
Posted on Feb 7, 2017

President Trump is in favor of the House's destination-based cash flow tax. Or at least that's what The New York Times made readers think after the president spoke to Republicans in Philadelphia. But the truth is much more complicated than that, and Trump has yet to mention the House plan since he told The Wall Street Journal that he found it "too complicated".

Without going into too many details, there is a difference between a border tax on Mexican exports and the border-adjustable cash flow tax on all imports into the United States proposed by Speaker Paul Ryan and House Ways and Means Chair Kevin Brady. Trump has consistently mentioned his support for a border tax, alternating between using that term and simply referring to punitive taxes on other countries as tariffs. In fact, Trump tweeted on February 3 that the United States should charge companies "taxes or tariffs" just like other countries, further sowing confusion about what the president is actually advocating.

The New York Times became fixated on Trump's referring to a border tax of 20 percent because the House plan just happens to feature a 20 percent rate for its destination-based cash flow tax. But Trump never mentioned the House plan by name, and he didn't even mention the word "adjustment," which has become a common way of referring to the House cash flow tax. His spokesman did later refer slightly more clearly to the House plan, but stopped short of an endorsement and seemed to actually be walking back earlier remarks that made the president's support clearer.

Why are the press and tax observers parsing every little word from Trump about this? Well, mostly because the president has declined to be specific.  But also because presidential and administration support will be critical given growing skepticism in the Senate. After Trump's sort-of-not-really endorsement of the plan and a Ryan release touting all the proposal's momentum, Republican senators finally began to speak up about the House blueprint. And what they said wasn't good. 

Texas Sen. John Cornyn tried to put the brakes on momentum when he said he wasn't sure about a border adjustment tax. He was much more clearly against a border tax on Mexican exports. Sen. Mike Lee of Utah has already said he would prefer something much simpler than the House plan. And Finance Committee Chair Orrin Hatch said that if the House plan made it to the Senate, it would undoubtedly be heavily altered. Hatch has been nursing a corporate integration tax reform proposal for a long time and probably won't completely cede all control to the House.

House Republicans are hoping that they can sell the border adjustment tax to Trump as a substitute for his tariffs. That's not impossible. But the House blueprint is not a tariff, and it doesn't accomplish the same goals. It doesn't target individual countries or companies. And it isn't really designed to raise revenue to build a wall on the Mexico-U.S. border, which is what Trump was talking about in Philadelphia to begin with. The House Republican plan is a major overhaul of the U.S. tax system that could dramatically affect the economy. It isn't just a pay-for.

Ryan's plan still has the benefit of being the only real proposal in the room. That will change when Steven Mnuchin is confirmed as Treasury secretary and the Senate actually begins to look at tax reform. And when other plans are out there, it's probably more likely that Trump will prefer something simpler and easier to pass, even if he has to find another way to raise $20 billion for his wall.  

Read Comments (1)

Mike55Feb 9, 2017

I bet Trump will push for exactly what he suggested during the campaign. That was: a 15% corporate rate; full expensing if you give up your interest deduction; eliminating all other tax benefits except R&D (including deferral); and mandatory repatriation at 10%. Maybe the 15% rate moves up a bit to appease budget hawks, since Trump said the 15% rate was "negotiable."

Everything we've seen from Trump since January 20th suggests he deems his campaign proposals to be promises. This is hard for people to accept, as we've become accustomed to the opposite from our political leaders. While a lot of folks might find Trump's approach disconcerting given what some of those campaign proposals were (myself included), at some point it's time to acknowledge Trump is the rare politician who intends to do what he says he'll do. As such, his position on tax reform really shouldn't be seen as a mystery.

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