The Washington PostDemocracy Dies in Darkness

GOP divisions grow over proposal for a border adjustment tax

Juan Luciano, chief executive of Archer Daniels Midland, and Brian Cornell, chief executive of Target, testify about tax reform. (Reuters/Joshua Roberts)
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A House Republican push for a new tax on imports is dangling by a thread after Treasury Secretary Steven Mnuchin sharply criticized it both publicly and privately on Tuesday.

At a conference, Mnuchin said the so-called border adjustment tax “doesn’t create a level playing field” and “has the potential to pass on significant costs to the consumer.”

Later, in closed-door meetings on Capitol Hill, the Treasury secretary told key lawmakers that the proposal represents an impediment to progress on a broader overhaul of the tax code, sources familiar with those meetings said. “There was agreement that the quicker we can unite against it, the quicker we can get to tax reform that can actually pass,” said one source with the hard-right House Freedom Caucus.

Mnuchin separately huddled with the conservative Republican Study Committee and Democrats on the tax-writing House Ways and Means Committee — after the panel held its first hearing on the border adjustment proposal. During the hearing, some GOP members on the committee expressed their own concerns, suggesting further resistance in Republican ranks.

Rep. Erik Paulsen (R-Minn.) said he cannot support the border adjustment tax as it is described in the plan. Another Republican, Rep.

Jim Renacci of Ohio, said he is skeptical of the idea, even though he has “been trying not to be.”

“I’m very concerned for the low-margin companies in my district,” Renacci said.

The border adjustment tax was supposed to provide an important stream of revenue so lawmakers could slash taxes in other ways. But while much of corporate America is in agreement that it would like to see a sweeping overhaul of the tax system — there is a deep divide about how best to achieve that.

The rift was on display during Tuesday’s hearing in the House. Brian Cornell, the chief executive of big-box behemoth Target, said in his testimony that he believed Target’s tax rate would leap from 35 percent to 75 percent if the border adjustment tax were enacted.

That’s because the levy would prevent companies from deducting the cost of imported goods, as they do now. Target says it is America’s second-largest importer, and that about half of what it sells comes from overseas.

“We – like many others – would be left with only bad options,” Cornell said.

Cornell argued that the retail industry would be forced to raise prices for consumers to cover the higher tax bill.  

“Every time your constituents fill up their gas tanks, they would pay more. The people who shop at Target are middle-class working families, whose budgets are already stretched,” Cornell said. “For them, this new tax would be a budget breaker.”

The committee also heard from Juan Luciano, the chief executive of Archer Daniels Midland, a producer of food ingredients, animal feeds and other items. Luciano’s company is part of a coalition of exporters such as GE, Boeing, and Caterpillar that supports the tax. Luciano said U.S. businesses in his industry have been losing global market share, and that he believes this tax change could help stop that. 

“This proposal offers the chance to give American farmers, American workers and American agriculture the chance to compete fully and to continue providing American products to customers around the globe,” Luciano said.

Some economists have pushed back against retailers’ concerns that prices would rise, insisting the value of the dollar would adjust under the new system in such a way that would mitigate the cost.

But importers argue that such an adjustment is no sure thing, and that the economics may not play out in the real world like they do in the textbooks. 

There’s one word that I continue to hear again and again, which is ‘if,’’’ Cornell said during the hearing. 

Opponents of the tax also say that there is a chance the provision could be deemed not compliant with World Trade Organization rules.

Even if a border adjustment tax were to garner broad support in the House, it appears poised to hit stumbling blocks in the Senate, where several Republicans have expressed doubts about the idea.

Sen. David Perdue (R-Ga.), for example, said earlier this month, “Right now, in the Senate anyway, I think the border adjustment tax is dead on arrival.”

Mike DeBonis contributed to this report.

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