Feb 15, 2017

“Border Adjustment” Tax Facing Trouble in the Senate

Post by Freedom Partners

Bi-partisan Concern Over Unprecedented Trillion-Dollar Tax On Consumers

House leaders are proposing a sweeping tax reform package to lower rates across the board. This bold effort should be applauded.

But there’s a problem. The more that lawmakers learn about how the new tax system would work, the more reason they have for concern. This is because House leaders are asking consumers to shoulder over a trillion dollars in new taxes to pay for reductions elsewhere. This is known as a “border adjustment” tax, and in effect would amount to a 20 percent tax on all imported goods, causing prices to increase on everyday products like apparel, electronics, automobiles, gasoline, and many others.

The new tax would force businesses to make a choice: raise prices, lay off employees, or go out of business. Gasoline could increase up to 40 cents per gallon, family savings could be slashed by 27 percent, and the price of goods like clothing and shoes could spike by as much as 20 percent.

Sen. Orrin Hatch (R-UT) recently declared that the border adjustment tax increase would not pass muster in the Senate.

“The seven-term senator (Hatch) said the House GOP plan would not pass the Senate, even if it moves under reconciliation instructions that would allow passage with 51 votes. He pointed to disputes over parts of the House plan, including a proposal for border adjustments to apply business income taxes to imports but not exports,” reported Roll Call.

“Border adjustment has a senate problem,” Axios also explained. “Both sides of the fight have gamed it out the same way: They think Ryan and the House Ways and Means chair Kevin Brady can probably squeeze the plan through the House, but the Senate is a different ball game.”

Advocates of the new tax in the House should take notice. A vote for this measure would be a vote for a trillion-dollar tax hike on American consumers already struggling under the Obama economy. Leading democrats, such as Ranking Members Levin and Wyden, have already previewed possible attacks on republicans for increasing taxes on consumers (below). Like we’ve said before: this is bad politics and even worse policy.

Pro-growth tax reform should be a priority for Congress and the new administration. But any plan to lower rates must also protect consumers and allow hardworking Americans to keep more of the money they earn, encourage businesses to invest, and promote economic growth and opportunity for all Americans.

A growing chorus of lawmakers is making it clear that they are very concerned with – or downright opposed to – the new tax on their constituents.

Sen. Mark Warner:  The border adjustment tax is a “VAT on steroids … I continue to hope that Chairman Hatch will try to do tax reform in a bipartisan way. It’s also got to be paid for … But this seems so far beyond anything that has been discussed. With this whole notion that it is going to work itself out and the dollar is going to rise in value, it seems a bridge too far.” (Kaustuv Basu & Laura Davison, “Senators Question Import Provisions In House Tax Proposal,” Bloomberg BNA, 2/2/17)

Sen. Ron Wyden: “Any serious, bipartisan reform effort must help all hard working Americans get ahead. The House GOP’s framework goes in the opposite direction, allowing the privileged few to push what they rightfully owe onto the backs of middle class families.” (Senator Ron Wyden, “Wyden Comments On House GOP’s Tax Blueprint,” Press Release, 6/24/16)

Rep. Sander Levin: “Layered on top of the rate reduction and a move to a territorial system is an adoption of ‘a destination-basis tax system,’ which would be achieved by providing for border adjustments exempting exports and taxing imports. Indeed, what the Republicans have included here is a key feature of a VAT, except that the blueprint goes through pains to insist such proposal is not a VAT. Instead, they refer to it as a shift to a consumption-based tax system, with no detail of what that consumption-based tax system looks like, and no detail of how that system would impact consumers and businesses.” (Representative Sander Levin, “Levin Statement On Republican ‘Better Way’ Tax Reform Agenda,” Press Release, 6/24/16)

Sen. David Perdue: “This 20-percent tax on all imports is regressive, hammers consumers, and shuts down economic growth … This would hammer consumer confidence and lower overall demand, thus putting a downward pressure on jobs … We end up with more losers than winners … American seniors will see their retirement savings evaporate at the same time their living costs increase.” (Naomi Jagoda, “GOP Senator: Reject Border Tax Proposal,” The Hill, 2/9/17)

Sen. Mike Lee: “This ends up becoming a VAT-like substance and I think it would end up having a lot of the negative characteristics of both a VAT and a tariff … I really don’t like it.” (Jonathan Swan, “Border Adjustment Has A Senate Problem,” Axios, 2/2/17)

Sen. Jerry Moran: “I worry that consumers, my Kansas constituents, are the ones who pay the tax … I assume you get into a battle with other countries … and it affects the exporters.” (Richard Rubin, “GOP Plan To Overhaul Tax Code Gets Held Up At The Border,” Wall street Journal, 2/7/2017)

Sen. Mike Rounds: “Asked … if he’s on board with the House proposal, Rounds said: ‘Not at this time, no … Any time we start talking about how we’re going to regulate products going out and products coming in, we better darn well know what the impact on the economy is before we start making major changes.” (Brian Faler, “South Dakota’s Rounds Joins BAT Skeptics,” PoliticoPro, 2/9/2017)

Sen. Orrin Hatch: “Utah Sen. Orrin G. Hatch has launched a new push for a bipartisan Senate alternative to the contentious House Republican tax plan, as President Donald Trump begins to frame administration priorities. ‘I don’t think you can pass a tax bill, unless it’s bipartisan.'” (Alan Ota, “Amid Senate Tensions, Hatch Eyes Bipartisan Tax Deal,” Roll Call, 2/14/217)

“The seven-term senator said the House GOP plan would not pass the Senate, even if it moves under reconciliation instructions that would allow passage with 51 votes. He pointed to disputes over parts of the House plan, including a proposal for border adjustments to apply business income taxes to imports but not exports.” (Alan Ota, “Amid Senate Tensions, Hatch Eyes Bipartisan Tax Deal,” Roll Call, 2/14/17)

“In a speech to the U.S. Chamber of Commerce, Senate Finance Committee Chairman Orrin Hatch did not reject the border adjustment tax proposed by House Speaker Paul Ryan. But he said there are questions about whether it would unduly burden U.S. consumers and businesses or pass muster under international trade rules.” (David Morgan, “Senate Tax Chief Questions Border Adjustment Tax,” Reuters, 2/1/17)

HATCH: ‘We don’t have definitive answers to any of those questions at this particular point. And without them, I don’t think I can give definitive positions.” (David Morgan, “Senate Tax Chief Questions Border Adjustment Tax,” Reuters, 2/1/17)

Sen. John Cornyn: “Many unanswered questions about proposed ‘border adjustment’ tax.” (Senator John Cornyn, Twitter, 1/26/17)

“Border adjustability is ‘a high-risk gamble … I’m still a question mark.” (Bernie Becker, “Skeptical GOP Senators Quiz Ryan On Border Adjustment,” Politico Pro, 2/14/17)

Sen. John Boozman: “At least seven GOP senators have expressed concerns about border adjustment, including Utah’s Mike Lee, Arkansas’s John Boozman, Georgia’s David Perdue and Texas’ John Cornyn.” (Richard Rubin, “GOP Plan to Overhaul Tax Code Gets Held Up At The Border,” Wall street Journal, 2/7/17)

“Sen. John Boozman (R-Ark.) said that he’s definitely hearing from Wal-Mart about the House plan, and that he still has questions about the currency aspect of the proposal.” (Bernie Becker, “Morning Tax,” Politico Pro, 2/2/17)

Sen. Rob Portman: “I do understand the need to be more competitive but I want to be sure that we do so in a way that does not cause dislocation in the economy.” (Bernie Becker, “Morning Tax,” Politico Pro, 2/2/17)

Sen. Roy Blunt: “I’m not there yet as a supporter.” (Bernie Becker, “Skeptical GOP Senators Quiz Ryan On Border Adjustment,” Politico Pro, 2/14/17)

Rep. Pat Meehan: “It puts us at a remarkable competitive disadvantage.” (Richard Rubin, “GOP Plan to Overhaul Tax Code Gets Held Up At The Border,” Wall street Journal, 2/7/2017)

Rep. Jim Jordan: “You’re now adding a new revenue stream to government, and the potential for abuse, I think, down the road is real.” (Naomi Jagoda, “GOP Senator: Reject Border Tax Proposal,” The Hill, 2/9/17)

Rep. Pat Tiberi: Tiberi “says some of his constituents back border adjustment while others are worried. He says Cardinal Health Inc. has voiced concerns about the cost of rubber for latex gloves and Honda Motor Co. has raised objections, too.” (Richard Rubin, “GOP Plan to Overhaul Tax Code Gets Held Up At The Border,” Wall street Journal, 2/7/17)