Former House Speaker John Boehner did not mince words Wednesday when asked about the controversial border adjustment tax, a policy favoured by current House Speaker Paul Ryan.
“The border adjustment tax is deader than a doornail,” Boehner said at the KPMG Global Energy Conference, according to the energy publication Rigzone.
The border adjustment tax, or BAT, is at its core a tax on imports into the US and favours exporters. Ryan and other House GOP leaders, like Ways and Mean Committee Chair Kevin Brady, have been fighting for the idea to be included in a broader tax-reform package.
Over the past week, however, the Trump administration has hinted it won’t push for the BAT. And many analysts believe the idea has little hope of making it into the final version of a GOP tax reform plan.
A renewed push
The BAT would tax goods based on where they are consumed rather than produced. A good made in the US but shipped to Mexico would not be taxed under the BAT, but a good made in Mexico and imported to the US would be. The idea is to encourage companies to make more goods in the US.
According to Politico, Ryan and Brady began to pass around a document recently that gives lawmakers reasons to back the BAT, positioning the idea as a pro-worker, populist proposal. The document also paints the tax as a repeal of the “Made in America” tax, in which products are taxed when they are exported by both the US and the country of destination.
In public, both Ryan and Brady have been on a media blitz in support of the idea.
Ryan went on a tour of US manufacturers earlier this month and talked up tax reform, though he did not explicitly talk about the BAT.
Brady went on CNBC to defend the BAT on Thursday, calling the idea “critical” to produce a revenue-neutral tax plan. Additionally, Brady’s House Ways and Means Committee held a hearing on the tax reform this week, with business leaders speaking in support of the BAT.
No White House support
But despite the push from Ryan and Brady, they face intense pushback from almost all corners of Washington.
The BAT runs into political problems because if enacted, prices for US consumers would likely increase, economists say. The BAT’s defenders say that the US dollar would strengthen in concert with the price increases, meaning consumers would have more purchasing power to combat the higher costs.
Economists, however, are sceptical that the US dollar — which is subject to myriad forces — would move in lockstep to ensure no harm to consumers.
Retailers that depend on importing goods could be especially hard hit, and many have come out against the plan.
Given these issues, the White House has been fairly consistent in its sentiment opposing the BAT.
Treasury Secretary Steven Mnuchin suggested in testimony to Congress and at a summit held by the Peter G. Peterson Institute that he was opposed to the idea.
“One of the problems with the border adjustment tax is that it doesn’t create a level playing field,” Mnuchin said. “It has very different impacts on different companies. It has the potential to pass on significant costs to the consumer. It has the potential of moving the currencies. We want to make sure we’re creating a level playing field.”
In private meetings, Mnuchin has seemed even stronger in his opposition.
Axios reported Thursday that Mnuchin told members of the House Freedom Caucus that he was against the idea. He reiterated that in a meeting with Democratic members of the Ways and Means Committee.
“Unless he was lying to us yesterday, I really felt it was dead on arrival,” Rep. Judy Chu, a Democratic member of the committee, told Bloomberg.
The BAT is facing similar pushback in the Senate. Senate Majority Leader Mitch McConnell told a meeting of New York CEOs in a meeting that the BAT was dead on arrival, people with knowledge of the meeting told Politico.
Other GOP senators, like Tom Cotton of Arkansas, have also come out against it.
“Secretary Mnuchin panned the border adjustment tax, bolstering our belief that the proposal is on its last legs in Washington,” said Edward Mills, an analyst from FBR & Co. “Mnuchin noted that the current draft of the BAT, as included in the Ryan Plan, was'”unworkable.’ While Congressional leadership will continue to stand by the Ryan Plan — which includes a BAT — we see low prospects for the BAT, unless the political winds significantly change.”
Greg Valliere, chief investment strategist at Horizon Investments, said Brady may get a bill with the BAT out of his committee and to the House, but it is unlikely to make it in any tax-reform bill that gets to Trump’s desk.
“We think House Ways and Means Committee Chairman Kevin Brady, a Ryan ally, will pass a bill in his committee this summer that will include a BAT, which will not prevail in the Senate,” Valliere wrote in a note to clients. “But the key is getting a bill moving, and if nothing else, Ryan will get an airing for a BAT — and he just might win a much smaller, phased-in provision.”
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