(Bloomberg) The hearing on the proposed border-adjustment tax that has split corporate America for months is finally happening, but the measure may be further than ever from reality.
Almost a year after House Republican leaders released a tax blueprint that depends in part on taxing U.S. companies’ domestic sales and imported goods while exempting exports, the Ways and Means committee will discuss the matter Tuesday amid growing doubts, including from the White House, over its future. Retailers and other importers have been trying to kill the idea and Target Corp. Chief Executive Officer Brian Cornell will testify on their behalf. Opposing him will be Bill Simon, a former top executive for Wal-Mart Stores Inc., who recently called the retail industry “hysterical” on the issue.
Although House leaders have continued pushing the border-adjusted tax, the White House released tax principles on April 26 that didn’t mention it, and has been said to be leaning away from the idea. Senate Majority Leader Mitch McConnell told Bloomberg last week that the provision’s chances were “rather bleak” in the chamber.
“We’ve invited people who have different views of this, so we can have an open, complete discussion about this,” House Ways and Means Committee Chairman Kevin Brady told reporters Monday. “It is still the gold standard solution for how you level the playing field for American workers and companies here in the United States and abroad. And how you stop jobs and plants and research from continuing to go overseas.”
Brady said he hadn’t seen discussions of alternatives to a border-adjusted tax in the witnesses’ testimonies, but that there would be a dialog about rules to help transition to a border-adjusted tax system.
Exporters Lobbying
A group of companies that supports the House plan has been increasing activity ahead of the hearing with more lobbying, ad spending and outreach to voters, according to John Gentzel, a spokesman for the American Made Coalition, whose members include export-heavy companies such as Dow Chemical Co. and General Electric Co.
“This would be a huge missed opportunity if we allow this to pass us by without doing something transformative and comprehensive to the tax code,” Gentzel said.
Other witnesses Tuesday include Juan Luciano, chairman and CEO of Archer-Daniels-Midland Co., another member of the American Made Coalition.
Simon, former head of Wal-Mart’s U.S. operations, will make the case that a border-adjusted tax would boost U.S. manufacturing and well-run chains should be able to respond to new rules. Wal-Mart has opposed the tax, but Simon, who left the retailer in 2014, said last week on Bloomberg Television that the retail industry’s opposition has been “self-serving.” Simon is currently a senior adviser for KKR & Co. while being on the board of retailer Chico’s FAS Inc.
Cornell, the Target CEO, has been one of the more vocal opponents to border adjustments and has said the tax would raise prices for consumers and hurt the business models of many companies that rely on imports. He’s met with about 30 members of Congress and was also part of the retail CEO group that met with Trump in February.
Phase-In Period
A border-adjusted tax, also called BAT, is estimated to generate more than $1 trillion over a decade, helping to pay for individual and corporate tax rate cuts. Writing a tax bill that doesn’t add to the nation’s deficit over the long run is important, because Senate rules require such revenue neutrality in order to pass permanent legislation with fewer than 60 votes. Republicans control only 52 seats in the Senate.
Proponents also say the idea would help keep companies in the U.S., and that it would result in a strengthening dollar, evening out the tax’s effect on prices over time.
Several manufacturers have organized to endorse the border-adjusted tax, while retailers, apparel makers and car dealers have been spending heavily to defeat it, with help from billionaires Charles and David Koch. The battle has resulted in months of lobbying on both sides—and even though many House and Senate Republicans have voiced concern or reserved their support, backers say they’re not ready to give up.
“Until the whole legislative effort is over, it’s premature to declare any one piece dead,” said Gordon Gray, director of fiscal policy for the American Action Forum, which supports the House GOP’s tax plan. “Border adjustment is still alive.”
House Speaker Paul Ryan, who helped to develop the proposal, said May 18 that a border-adjusted tax “should have some kind of an adjustment and phase-in period.” The retail lobby, however, has said it opposes BAT in any form.
—With assistance from Anna Edgerton
