Canadian Manufacturing

Facing stiff opposition, U.S. Republicans overhauling proposed border tax

Automakers and other industry critics say the proposed tax would raise costs, while supporters including Boeing, Caterpillar and GE argue the tax will benefit U.S. manufacturers


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The auto industry relies heavily on imports, a factor that could raise costs if the border tax is approved. PHOTO FCA

WASHINGTON—Faced with mounting opposition within the Republican Party, a powerful House committee chairman says he is making significant changes to a proposed tax on imports.

Rep. Kevin Brady says he is working on changes to both the design of the tax and how it would be phased in. The Texas Republican did not offer more specifics, but said he meets regularly with President Donald Trump’s economic team.

The Trump administration has sent mixed signals on the proposed tax.

Brady, who chairs the tax-writing House Ways and Means Committee, said the changes are based on input from businesses, individuals and, importantly, Senate Republicans.

Not a single Republican senator has publicly supported the tax. A growing number have opposed it.

“I think that the key is for us to work to resolve and narrow the differences on these provisions, always with the goal of the lowest rate in modern history for job creators,” Brady said.

The changes are being worked on as Brady reaches out to House Democrats to gauge whether they will work with Republicans on a tax overhaul. Brady met with Democratic members of the committee April 5.

Afterward, several Democrats said the meeting was cordial but preliminary.

“We’re not negotiating with them at this point. We’re just listening,” said Rep. Joseph Crowley, D-N.Y.

A growing number of House Republicans say that a tax overhaul should be bipartisan, especially after Republicans failed to pass a health care bill without trying to get support from Democrats. They worry that Republicans in the House will face the same divisions on a tax bill.

The new “border adjustment tax” would be applied to profits from goods and services consumed in the U.S., whether they are domestically produced or imported. Exports would be exempt.

The border tax is a key part of Republicans’ plan to lower the top corporate income tax rate from 35 per cent to 20 per cent. It would raise more than $1 trillion over a decade to help pay for lower overall tax rates.

House GOP leaders say the tax would help make American companies more competitive with their foreign counterparts, while encouraging companies to stay in the U.S. or even move here.

Most tax experts agree that America’s current tax system rewards companies for moving headquarters and jobs overseas.

The border tax is being lobbied hard on both sides.

Industries that rely on imports, including retailers, automakers and oil refineries, say the tax would be passed on to consumers in the form of higher prices. They also warn that the new tax could violate trade rules under the World Trade Organization.

A retail group led by Walmart, Target, Toyota, Best Buy and many others has launched a campaign against the tax.

On the other side, Boeing, Caterpillar, General Electric and others say the tax would benefit American manufacturers, a key campaign promise by Trump.

In theory, economists say that the new tax would cause the dollar to increase in value compared to other currencies. This would make imports cheaper and exports more expensive, reducing or even eliminating the effect of the tax on consumer prices.

But there is no consensus among economists on how it would work in the real world. Because the tax is such a significant departure from the current system, many lawmakers from both parties are wary of it.

“When it comes to border adjustment, I would need to see a transition rule that gives me a comfortable level that we’re not picking winners and losers, it can pass WTO, and at the same time we’re not pushing costs on to consumers,” said Rep. James Renacci, R-Ohio, a member of the Ways and Means Committee.

Renacci has been working on his own tax plan and it doesn’t include the border tax.

“I’m not a big believer that the federal government should be picking winners and losers, whether it’s in the auto industry or whether it’s in tax reform,” he said.


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