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Speaker Ryan admits defeat, giving up on border adjustment tax

President Trump, flanked by Senate Majority Leader Mitch McConnell (R-Ky.), left, and House Speaker Paul D. Ryan (R-Wis.), speaks during a White House meeting in March with House and Senate leadership. (AP Photo/Evan Vucci)
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House Speaker Paul D. Ryan (R-Wis.) has agreed to jettison one of the most controversial aspects of his tax overhaul plan, clearing the way for the White House to move forward on its plans for sweeping tax cuts later this year.

After months of talks, Ryan and House Ways and Means Committee Chairman Kevin Brady (R-Tex.) have backed down on their demand that any changes to the tax code include the imposition of a new “border adjustment tax” on imported goods, at least in the short term.

The revelation came in a joint statement that Ryan, Brady, top Senate Republicans and senior White House officials released Thursday as way to update the public about the status of their tax overhaul negotiations.

“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,” the group said in the joint statement. They added that they hope Congress could begin crafting and voting on the tax changes sometime in the fall.

The proposed border tax would have also created incentives for U.S. companies to export products. But it proved divisive with retailers and other businesses.

Ryan had defended the proposed border tax for more than a year, but he acknowledged it had divided his party. He has long said his top priority was passing an overhaul of the tax code, and discarding the import tax is expected to make it easier for GOP leaders and the White House to move closer towards a deal.

"In order for us to unify, it was important to set it aside for now," Brady told reporters Thursday afternoon.

Several business groups cheered the joint statement Thursday, saying it shows unity between the White House and GOP leaders going forward.

The import tax measure was opposed by many Republicans and White House advisers because they argued it would drive up costs for millions of Americans on a range of items, including clothing, electronics and automobiles.

Ryan and Brady defended the border adjustment tax for months, saying it would give companies incentives not to move factories overseas. It would have also raised about $1 trillion in revenue over 10 years, which would limit the deficit impact of cutting corporate tax rates.

But the proposed border tax unleashed a major backlash from numerous companies that said it would drive up the costs of their products.

The rest of the joint statement between the White House and Republican leaders essentially reiterated positions that the Republicans have long held, and left numerous questions unanswered about how they would proceed.

It said, for example, that their goal for changing the tax code “places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.”

But it does not explain what a “priority on permanence” means. It does not say whether they will insist that any changes to the tax code be made permanent or whether that would simply be their preference. Similarly, the joint statement does not identify a single tax break that they have agreed to eliminate to offset the loss of revenue that comes from lowering tax rates.

And the statement stops far short of explaining whether the tax changes will equate to a tax cut that leads to a loss in revenue. White House officials in recent weeks have talked about the plan as a tax cut, while many congressional Republicans refer to it as “tax reform.”

Democrats on Thursday pounced on the lack of specifics and prodded Republicans for so far failing to include their party in negotiations.

“Republicans are dripping tax ideas out like a leaky faucet with no specifics to back them up,” said Sen. Ron Wyden (D-Ore.) in a statement. “This is a far cry from the last time Congress overhauled our tax code in 1986.”

Wyden is the top Democrat on the Senate Finance Committee.

The White House in April issued a one-page blueprint that called for lowering the corporate tax rate from 35 percent to 15 percent, reworking tax brackets for individuals and families, and eliminating the estate tax as well as the alternative minimum tax.

Tax analysts believe these changes and others proposed by the White House would lead to at least a $5 trillion cut in taxes over 10 years, but Republican leaders have said they would only support a tax overhaul if it doesn’t lead to a reduction in revenue collected by the government.

They have proposed lowering the corporate tax rate to 20 percent, which would be a sharp reduction but not as much as the White House has proposed.

Negotiators still haven’t resolved how to reconcile many of these differences and there was no indication in the joint statement whether they were making progress in this area. The statement did not mention whether there has been an agreement on what any tax rates should be.

They are hoping to return from the August congressional recess with more details of their plan and then begin holding debates and votes on the measure.

But they are already looking at backup plans in case they can’t get sufficient consensus on overhauling the entire tax code, as Congress hasn’t agreed on such changes in more than 30 years. Still, they are expected to make a concerted push in September and October to see whether they can unify Republicans behind a plan before looking at alternatives.

-- Tory Newmyer contributed to this article.