Border Tax Hits a Wall of Opposition

A key element of Paul Ryan’s tax-reform plan has lots of GOP foes, especially in the Senate.

Trucks ride next to the U.S.-Mexico border fence before crossing to the United States.
AP Photo/Guillermo Arias
Alex Rogers and Daniel Newhauser
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Alex Rogers and Daniel Newhauser
Feb. 15, 2017, 8:01 p.m.

Des­pite a per­sist­ent press by House Speak­er Paul Ry­an, it’s hard to find a Re­pub­lic­an sen­at­or who sup­ports a key as­pect un­der­pin­ning his tax re­form plan—one of the top agenda items for the White House and Con­gress this year.

At is­sue is a pro­posed tax on im­ports—and it’s freak­ing out the con­stitu­ents of sen­at­ors. Sen. John Cornyn of Texas, the second-rank­ing Re­pub­lic­an, re­calls a con­ver­sa­tion with one oil re­finer who told him the pro­pos­al would in­crease the cost of gas by 30 cents. Sen. Rand Paul of Ken­tucky says that he’s heard a Camry would cost $1,000 more—hurt­ing Toyota man­u­fac­tur­ers in his state. Sen. Pat Roberts of Kan­sas wants to make sure it doesn’t start an ag­ri­cul­ture trade war.

“We sure as hell don’t need that,” said Roberts.

At is­sue is Ry­an’s con­tro­ver­sial pro­pos­al to im­pose a 20 per­cent tax on im­ports while ex­clud­ing ex­ports in or­der to help off­set the cost of dra­mat­ic­ally lower­ing the cor­por­ate tax rate. While Re­pub­lic­ans of­ten state their de­sire for a sim­pler, lower tax code to un­leash eco­nom­ic growth, the so-called bor­der ad­just­ment has di­vided them, im­per­il­ing the pos­sib­il­ity of passing tax re­form.

In the Sen­ate, Re­pub­lic­ans from across the ideo­lo­gic­al spec­trum have ex­pressed doubts. Hard-right con­ser­vat­ives don’t think the plan lowers the cor­por­ate tax rate enough; they’d prefer to lower it from 35 per­cent to zero, in­stead of 20 per­cent plus the new tax, as Ry­an has ar­gued. Mean­while, more mod­er­ate sen­at­ors have raised ques­tions about wheth­er the pro­pos­al would in­crease costs on Amer­ic­an con­sumers—and wheth­er it would hurt vari­ous home-state in­dus­tries, in­clud­ing auto­mobile man­u­fac­tur­ers, oil re­finer­ies, and re­tail­ers.

“Some people think that they’re do­ing this so they can raise more taxes without it be­ing no­ticed,” said the top Sen­ate tax-writer, Fin­ance Chair­man Or­rin Hatch, in an in­ter­view. “But the prob­lem is that all those costs, ac­cord­ing to some crit­ics, will be passed onto Amer­ic­an cit­izens.

“You know, there’s a real ques­tion wheth­er it’s that good of a deal to do that, while at the same time ant­ag­on­iz­ing per­haps some of our closest neigh­bors,” Hatch ad­ded.

After re­peal­ing and re­pla­cing the Af­ford­able Care Act, the White House, Ry­an, and Sen­ate Ma­jor­ity Lead­er Mitch Mc­Con­nell have set tax re­form as the second-highest pri­or­ity of the year. And as in the battle over health care, the Re­pub­lic­ans in Con­gress have de­cided to go at the tax code without Demo­crat­ic in­put. But by do­ing so, they’re for­cing them­selves to get at least 50 of 52 Re­pub­lic­an sen­at­ors to pass their agenda. That’s prov­ing dif­fi­cult on mul­tiple fronts, in­clud­ing on passing tax re­form with bor­der ad­just­ment.

The in­tra-party battle has pit­ted im­port-heavy busi­nesses like Wal-Mart and oth­er re­tail gi­ants like Tar­get, Gap, and Best Buy—the CEOs of which met with Pres­id­ent Trump on Wed­nes­day—against ma­jor ex­port­ers like Boe­ing and Gen­er­al Elec­tric. On Tues­day, Ry­an vis­ited the Sen­ate Re­pub­lic­ans’ lunch­eon to make his pitch, but it doesn’t ap­pear he changed many minds.

Sens. Tim Scott and Lind­sey Gra­ham of South Car­o­lina rep­res­ent a state that has a sig­ni­fic­ant busi­ness pres­ence on both sides of the is­sue. On Wed­nes­day, both sen­at­ors ex­pressed their con­cerns.

“You don’t get the 20 per­cent break com­ing in; you get it go­ing out,” said Scott. “That means that ul­ti­mately the guy who’s in the coun­try may pay a high­er price.”

Oth­er Re­pub­lic­an sen­at­ors have been less cir­cum­spect. Sen. Dav­id Per­due, a former CEO of Ree­bok and Dol­lar Gen­er­al, re­cently sent around a let­ter to his col­leagues say­ing the bor­der ad­just­ment “ham­mers con­sumers and shuts down eco­nom­ic growth.

“This pro­posed bor­der-ad­just­ment tax is a bad idea and should not be­come a per­man­ent part of our tax code,” he ad­ded.

Sup­port­ers of the pro­pos­al say the cost to im­port­ers will be off­set by a strengthened dol­lar. But Re­pub­lic­ans in the Sen­ate lead­er­ship and on the Fin­ance Com­mit­tee are un­cer­tain that the the­ory will be real­ized in prac­tice. Sen. Chuck Grass­ley, a seni­or mem­ber of the Fin­ance Com­mit­tee, said, “That’s sort of a re­la­tion­ship pretty hard to prove.”

Pres­id­ent Trump’s po­s­i­tion isn’t yet clear. In an in­ter­view, Hatch said that the ad­min­is­tra­tion is “not very en­thused” about the bor­der tax; a White House of­fi­cial re­spon­ded, “We are in open con­ver­sa­tions with Con­gress” on tax re­form.

Last month, Trump told The Wall Street Journ­al that the idea is “too com­plic­ated” be­fore walk­ing his state­ment back. But some sen­at­ors have latched onto his ini­tial com­ments.

“If it’s com­plic­ated for a busi­ness­man that deals in bil­lions, you know how it’s com­plic­ated for a guy that makes $174,000,” quipped Grass­ley.

The bor­der-tax meas­ure is con­tro­ver­sial in the House, too. Mem­bers in the hard-right Free­dom Caucus said last week at a re­treat in Man­hat­tan that they don’t sup­port adding a new tax to the gov­ern­ment’s rev­en­ue stream.

“I don’t. That would be a tax on my con­stitu­ents. It would in­crease [the price of] their goods and ser­vices. At this point, I have not heard any good reas­on­ing for it,” said Rep. Raul Lab­rador of Idaho.

But even Re­pub­lic­ans who usu­ally align with their lead­er­ship have ex­pressed con­cerns that it would hurt busi­nesses in their dis­tricts.

“The bor­der tax does not help a lot of people, es­pe­cially in Texas,” said Rep. Ro­ger Wil­li­ams. “You name it—oil and gas, auto, re­tail.”

Some mem­bers of Con­gress are still try­ing to un­der­stand such a com­plic­ated is­sue. When asked his po­s­i­tion on bor­der ad­just­ment in the Cap­it­ol this week, Sen. Bill Cas­sidy, a mem­ber of the Fin­ance Com­mit­tee, ges­tured to the man walk­ing next to him. He replied, “I don’t know about that, but I’m talk­ing to this guy who does.”

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