The border adjustment tax seemed as good as dead. Big retailers like Walmart and Target had been lobbying hard against it. The National Retail Federation launched an aggressive campaign to kill it. The Senate didn’t seem to want it. And the White House doesn’t like it.
But the provision, which would essentially add a 20 percent tax on imported goods while exempting US exports, was the key solution House Republicans had come up with to raise enough revenue to offset corporate tax cuts. They don’t seem to have an alternative plan — which is why they refuse to let the border adjustment die.
On Tuesday, the House Ways and Means Committee staged a revival effort, in the form of a congressional hearing. Its name reflected a new public relations strategy: Increasing US Competitiveness and Preventing American Jobs From Moving Overseas.
Committee Chair Kevin Brady made a hard sell for the tax, describing a nation ravaged by competition from abroad and manufacturers finding it more profitable to operate overseas. He talked about the need to fix the tax code to help American businesses that are struggling to stay ahead.
He pointed out that most developed countries in the world have a similar value-added tax on imports, and compared the United States to countries like Cuba and North Korea, which don’t.
“No more special tax breaks for foreign products,” Brady said. “For the first time, we will level the playing field for American workers, farmers, and manufacturers.”
Meanwhile, GOP leaders have ramped up a new marketing campaign to sell the provision, including to their own members. They even handed out a “communications document” describing how to talk about the merits of the provision (which Politico published on Monday).
In the document, House Republicans outlined their communications strategy, which included three steps to selling the BAT. Step 1: Link the broken tax code to job losses in manufacturing. Step 2: Personalize the message. (“To make the case, highlight someone in your district who has been hurt by an American business moving its jobs and headquarters overseas.”) Step 3: Get the word out through blog posts, op-eds, and social media.
The message does not appear to be winning converts. In Tuesday’s hearing, Rep. Erik Paulsen, a Republican from Minnesota, said he could not “support the border adjustability provisions as introduced last year in the blueprint.”
It’s implausible that House Republicans could get enough support for the tax, particularly in its current form, says Caroline Freund, a senior fellow at the Peterson Institute for Economics. Its only chance of survival is to scale back the tax significantly — maybe a 3 to 6 percent tax that is phased in over a number of years.
“But then it doesn’t raise the kind of revenue that Brady or [House Speaker Paul] Ryan would want to make it fiscally neutral,” Freund says. “This is the conflict.”
The GOP leadership message appears to be swamped by well-funded groups that oppose the provision.
Retailers were not happy that House Republicans were reviving the border-adjustment tax. Americans for Affordable Products, which represents 500 retailers that despise the tax, responded with its own aggressive messaging strategy — one that focused on the damage it would inflict on small businesses and consumers. Within a matter of minutes, the organization flooded reporters’ email inboxes with quotes from worried small-businesses owners.
The National Retail Federation also responded in full force, hitting up social media and news outlets with details about the impact on consumers. According to the industry group, the tax could cost the average family $1,700 a year as a result of price increases on food, gas, clothing, and prescription medicine.
On Wednesday, the association sent an army of CEOs to Washington, DC, to dissuade members of Congress from pursuing this tax. The 20 executives and business leaders include representatives from Ikea, QVC, and Dillard’s.
The executives headed to Capitol Hill to “urge lawmakers to say ‘yes’ to tax reform but ‘no’ to doing it on the backs of consumers through a new import tax,” said federation president Matthew Shay in a statement.
The executives and business owners also planned to meet with White House officials — who are raising their own doubts on the provision.
The White House is skeptical
The Trump administration has been wishy-washy about whether the president would sign a tax reform bill that included a border adjustment tax. President Trump initially said he didn’t like it. Then Treasury Secretary Steve Mnuchin said in April that the White House is open to revising the plan.
“We just don’t think it works in the current form,” he said, without giving details about how they would fix it.
Mnuchin is a key player in the tax reform process, meeting often with Speaker Ryan and House Ways and Means Chair Brady. On Tuesday, he was more forceful in his criticism of the tax, according to Bloomberg.
“One of the problems with the border-adjusted tax is that it doesn’t create a level playing field,” Mnuchin said at an event in Washington. “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.”
The problem for the White House and congressional Republicans is that the administration hasn’t offered a competing plan to pay for the trillions of dollars in tax cuts Trump wants. It is instead relying on overly optimistic assumption about economic growth to offset the lost revenue. But that won't fly in Congress.
The border adjustment tax is supposed to raise more than $1 trillion over 10 years, and would help keep the tax reform bill revenue neutral. That is key to getting the bill through the Senate via budget reconciliation, which allows Republicans to pass a bill with a simple majority vote, as long as it doesn’t add to the deficit after 10 years. If members don’t want to use the border adjustment to achieve revenue neutrality, they’ll need another idea — and fast.