House Republicans have officially killed their border adjustment tax. The idea was barely a year old but was a cornerstone to their plan to reduce corporate tax rates this year. Its death leaves big questions for President Trump, the GOP, and the tax reform push.
The proposal to tax businesses on imported products, while exempting exports, suffered many near-death experiences in the 13 months it was debated. But it probably never stood a chance against powerful retailers that warned they would bear its brunt, such as Walmart and Target. Many Republican lawmakers were also worried about the impact on consumers, who would most likely see the cost of household products increase, at least initially, if the tax were implemented.
"While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform," House Speaker Paul Ryan (R-WI) wrote in a joint statement with the White House and Senate leadership on Thursday.
Notably, the statement made no mention of what might replace the provision in a reform package, effectively punting a crucial decision Republicans will eventually need to make.
The 20 percent tax on imports, known as a destination-based cash flow tax, was never a popular idea. But it was the only solution Republicans had come up with to raise enough revenue to help offset corporate tax cuts and keep the budget deficit from ballooning.
The border adjustment tax was supposed to raise more than $1 trillion over 10 years, and some analysts projected it would help keep the tax reform bill revenue neutral when economic growth was also factored in. Such neutrality is key to getting the bill through the Senate via budget reconciliation, which allows Republicans to pass a bill with a simple majority vote — but requires the bill not to add to the deficit after 10 years.
In May, the House Ways and Means Committee tried one last time to revive the idea at a congressional hearing. Committee Chair Kevin Brady (R-TX) made a hard sell for the provision, 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.
It didn't work. Now Republicans are back where they started: with no agreement on a way to pay for tax reform.
Ryan, Treasury Secretary Steve Mnuchin, and Brady — part of the group dubbed the "Big Six" — have been meeting for months to find some common ground.
So far, they haven't released any new plan to offset the trillions of dollars in tax cuts they've promised. The statement they released Thursday offers few clues about how they are moving forward, other than repeating their broad goals of lowering taxes for small businesses and corporations. They did say they would start writing legislation through the committee process this fall.
If their fight over health care is any sign, they will put off making the hard choices for as long as possible.