Ryan drops border-tax proposal as GOP unifies around principles

The White House and congressional GOP leaders said Thursday that they are no longer looking at a border-adjustment tax as they work to get tax reform legislation enacted this year.

In a statement backed by Speaker Paul Ryan (R-Wis.), the leading advocate for the border tax, the GOP’s “Big Six” said they were casting the idea aside.

“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 administration officials and lawmakers said in a statement.

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The border-adjustment proposal, part of a tax reform plan House Republicans released last year, would have subjected imports to U.S. tax while exempting exports. Supporters of the proposal had argued that it would remove incentives for companies to move their jobs and headquarters to other countries.

But the proposal faced steep pushback from the retail industry, conservative groups and many GOP lawmakers. The White House and GOP Senate leaders never embraced the proposal.

The administration officials and congressional leaders said they believe they can find a way to encourage domestic manufacturing without a border-adjustment tax.

“We are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base,” they said.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters Thursday that he still thinks border adjustment is the “best solution for keeping jobs in America” but that “in order for us to unify, it was important to set it aside for now.”

Opponents of the border-adjustment tax (BAT) cheered the policymakers’ statement and said they want to work with Congress and the White House to rewrite the tax code.

“We are pleased that the BAT debate is behind us,” said Mark Holden, chairman of Freedom Partners Chamber of Commerce, a group backed by wealthy GOP donors Charles and David Koch. “The joint statement released today is a welcome step toward a unified plan to fix our broken tax code.”

Retail Industry Leaders Association President Sandy Kennedy said in a statement that “with BAT out, Washington has an opportunity for the first time in more than a generation to pass a tax reform plan that boosts American businesses and family budgets.”

But casting aside the border tax also creates some challenges for tax reform.

The proposal was estimated to raise about $1 trillion that could be used to help pay for lowering rates. Without border adjustability, lawmakers and the White House will need to find another way to help offset tax cuts if they want to prevent tax reform from increasing the deficit.

“That’s really going to be the hardest part of this,” said KPMG’s John Gimigliano.

The announcement that border adjustability would be set aside comes as part of a five-paragraph statement that also outlines the shared principles of the White House and congressional Republicans on tax reform.

“We have always been in agreement that tax relief for American families should be at the heart of our plan,” the lawmakers and administration officials said.

“We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.”

The statement was released by a group known as the “Big Six”: Ryan, Brady, Senate Majority Leader Mitch McConnell (R-Ky.), Senate Finance Committee Chairman Orrin Hatch (R-Utah), Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn.

The group has held regular meetings to reach agreement on a tax framework that can be supported by the White House and congressional Republicans. The discussions among the Big Six provide guidance to the House Ways and Means and Senate Finance Committees, which will be writing the tax-reform legislation.

Aside from dropping border adjustability, the Big Six’s statement did not provide much clarity on other tax issues that have been dividing Republicans. For example, it did not specify tax rates and whether legislation would allow businesses to deduct their interest expenses.

Neil Bradley, senior vice president and chief policy officer at the U.S. Chamber of Commerce, said that it’s “positive that we don’t see precise numbers” on tax rates because it indicates that policymakers are committed to putting all of the elements of tax reform together to generate legislation that can pass, rather than specific rate goals.

Gimigliano said that it wouldn’t make sense for lawmakers to announce their offsets for tax cuts now because they are trying to build momentum for their tax-reform efforts rather than invite more pushback.

“Strategically, there’s no reason to put it out there now,” he said.

Gimigliano added that the Big Six’s statement helps put attention on taxes while Congress is focused on repealing ObamaCare and gives lawmakers something to talk about with constituents over the upcoming August recess.

“It gives them ammunition,” he said.

GOP lawmakers are hoping to sell tax reform to the public while they are back in their districts, and outside groups are expected to make the case for a tax code rewrite as well.

Brady is giving lawmakers materials to help them sell tax reform, including a calendar with 31 days of messages about the need for a tax overhaul and a pocket card that outlines the broad goals of reform.

The Big Six said they want tax-reform legislation to move through regular order, and they hope “our friends on the other side of the aisle will participate in this effort.”

But Democrats were not enthusiastic about the Republicans’ statement.

“Today’s threadbare joint statement shows Republicans continuing to flounder instead of inviting bipartisan progress on real tax reform for hard-working Americans,” House Minority Leader Nancy Pelosi (D-Calif.) said.

This story was updated at 5:02 p.m.