Conservatives push to drop border tax from tax reform

Conservatives are ramping up the pressure on House GOP leaders to abandon the border-adjustment tax proposal and move on with tax reform.

The proposal to tax imports and exempt exports was a key plank of the tax blueprint Speaker Paul Ryan (R-Wis.) released last year but has been on life support for some time after dividing lawmakers and business interests.

With Republicans still looking for a major legislative achievement in the first year of President Trump’s administration, some lawmakers and right-leaning groups want Congress to give up on the border-adjustment tax (BAT) in an effort to cut taxes as quickly as possible.

The Heritage Foundation, which backed a BAT in a 2015 report, released a paper Thursday urging Congress to pursue a tax reform plan that doesn’t include the proposal.

The conservative think tank, which is widely respected by congressional Republicans, argued that the proposal is a “significant economic gamble.” It also noted the political difficulty of implementing a border-adjustment tax.

{mosads}“Regardless of one’s ultimate view of the economics of border adjustments, it is clear that the current proposal is impeding an otherwise unified effort for tax reform,” the group wrote.

One day later after Heritage released its report, House Freedom Caucus Chairman Mark Meadows (R-N.C.) said at an event at Heritage that it’s time to look beyond the border tax proposal.

“There is not consensus for the border-adjustment tax,” Meadows said. “The sooner we acknowledge that and get on with a plan that actually works and actually can build consensus, the better off we will be.”

The members of the conservative Freedom Caucus are split over the border tax, and the group hasn’t formally come out against the proposal. But many caucus members don’t view it as something that can get enacted.

“I don’t see how you pull it off politically,” said Rep. Warren Davidson (R-Ohio), who said that he could live with a BAT.

Groups affiliated with GOP billionaire donors Charles and David Koch have also been stepping up the pressure to pass tax reform.

One Koch-backed group, Americans for Prosperity (AFP), recently launched a six-figure ad campaign aimed at getting lawmakers to rally behind the group’s tax reform principles. One of those principles is that tax reform not include new burdens on taxpayers, which is where AFP’s opposition to the BAT comes in.

AFP President Tim Phillips said that Republicans are in agreement on a host of other tax-related issues. He also said House Ways and Means Committee Chairman Kevin Brady (R-Texas) is “isolated” in his continued commitment to the proposal, since the White House and many Republican lawmakers want to move on.

“The most significant holdup at the moment is Chairman Brady’s insistence on a border-adjustment tax,” he said.

The challenge with abandoning the border-adjustment proposal is that lawmakers will need to find another way to raise revenue to pay for tax cuts and an alternative method to prevent companies from shifting their profits, jobs and headquarters overseas.

Brady told reporters Thursday that cutting tax rates alone won’t stop companies from leaving the U.S.

“We need to redesign our system to be competitive, and so the border-adjustment proposal not only solves that but actually starts to begin bringing the supply chains home,” he said.

Brady added that he’s open to ideas from BAT critics on “how we stop jobs from leaving and more importantly bring them back.”

Finding an acceptable alternative to the border-adjustment proposal could be tricky, given that any alternative would likely have its own opponents.

“I think the ultimate perspective is, if you’re waiting for some kind of revenue-raising provision that no one will get mad at to just come in on a white horse to save your tax proposal, you’re not going to find it,” said Alan Cole, an economist at the Tax Foundation, which has supported the BAT.

Some conservatives have suggested that tax reform does not need to be revenue neutral, and that tax cuts could be paid for through spending cuts.

But Cole said that when Republicans are trying to cut hundreds of billions in spending, it’s hard for them to reach an agreement.

“The politics of cutting spending are pretty hard too,” he said.

The Freedom Caucus took an official position Tuesday urging Congress to cancel the August recess to work on tax reform and other issues of importance. Several other prominent conservatives also support that position and argue that if Republicans don’t pass a tax bill, it could hurt them in the 2018 midterm elections.

“We have to start showing the American people some tangible proof that Republicans can govern,” said Jason Pye, director of public policy and legislative affairs at FreedomWorks.

Pye said it’s “short-sighted” for lawmakers to be focused on the BAT and said that lawmakers can oppose the proposal and still have constructive conversations with House leadership and the Ways and Means Committee on tax reform more broadly.

“We have to move past that,” he said.

Trump campaign adviser Larry Kudlow said in an op-ed in the New York Sun Friday that Meadows “is absolutely right that the August recess should be cancelled.”

Kudlow opposes the BAT and said he’s been pitching the White House on a tax plan of “three easy pieces” of a 15-percent corporate tax rate, full expensing of businesses’ capital investments and a one-time rate of 10 percent on earnings that American corporations repatriate to the U.S.

He’s encouraging policymakers to include a corporate rate cut in legislation to repeal ObamaCare, and to tackle tax cuts for individuals at a later point.

“If the GOP can’t deliver, they’re not going to get it done in the fall and they’re not going to get it done next year. This is the moment,” Kudlow said in an interview with The Hill.