House Republicans face opposition to their plan to overhaul the way corporations pay federal taxes from a powerful group of lawmakers — other Republicans.
“I’m not very enthused about it,” said Republican Sen. Orrin Hatch of Utah, the chairman of the Finance Committee and the Senate’s top tax writer.
Another skeptic is John Cornyn of Texas, the No. 2 Republican in the Senate.
“The question is, who is going to pay the tax?” Cornyn asked. “Is it going to be our citizens?”
Seeking to overhaul the tax code for the first time in 30 years, the House GOP plan would scrap the 35 percent tax on corporate profits, which is riddled with exemptions, deductions and credits. It would be replaced with something called a “border adjustment tax.”
Under the system, American companies that produce and sell their products in the U.S. would pay a new 20 percent tax on the profits from these sales. However, if a company exports a product, the profits from that sale would not be taxed by the U.S.
Foreign companies that import goods to the U.S. would also have to pay the tax.
The proposal could help American workers and exporters who are struggling to compete against low-wage workers in other countries. However, it could also drive up prices for imported goods, including automobiles, consumer electronics, oil — and therefore gasoline — and everyday retail items.
The border adjustment tax is a key feature of House Republicans’ efforts. It provides the revenue — more than $1 trillion over a decade — to help pay for lower overall tax rates.
With control of the House, Senate and White House, Republicans believe they have a unique opportunity to remake the tax code to their liking.
But Republican solidarity is crucial for success. The GOP holds only a two-seat majority in the Senate, and no Democrat has signaled support for the House plan.
Also, President Donald Trump has been critical of the plan.
The proposal is championed by House Speaker Paul Ryan, R-Wis., and Rep. Kevin Brady, R-Texas, chairman of the tax-writing House Ways and Means Committee.
Brady says the proposed system would boost American manufacturers and exporters, and help U.S. companies compete abroad.
“This tax has a simple but powerful principle, which is every product and service that is consumed in the United States will have an equal business tax rate of 20 percent,” Brady said.
“That not only levels the playing field between our foreign competitors in America, it gives our made in America products a fighting chance both here and abroad and eliminates any tax incentives to move U.S. jobs or manufacturing and research overseas.”
There is widespread agreement that the current tax system is too complicated and picks too many winners and losers, compelling companies to make businesses decisions based on tax implications instead of sound business reasons.
But there is no consensus on fixing it.
Brady said the border adjustment tax is just the kind of bold change that is needed to unleash the economic might of American workers and companies.
“America can’t become competitive and certainly can’t leapfrog into the lead pack of the most competitive places on the earth for that new job and that new investment unless we go bold on tax reform,” Brady said.
The conservative House Freedom Caucus has not taken a formal position on the proposal. But the caucus chairman, Rep. Mark Meadows, R-N.C., said he’s got members on both sides of the debate.
One member of the caucus, Rep. Jim Jordan, R-Ohio, said, “Taxes always impact people, and it’s going to be a tax on families who are buying products.”
In theory, economists say that under the plan, the dollar would increase in value compared to other currencies. This would make imports cheaper and exports more expensive, reducing or even eliminating the effect of the tax on consumer prices.
But there is no consensus among economists on how it would work in the real world.
“I think the (border adjustment tax) is uncharted territory,” said Caroline Freund, senior fellow at the Peterson Institute for International Economics.
Freund spoke at a conference on the House plan where there was wide disagreement among economists and tax experts on how well the tax would work.
Lobbyists have already starting to weigh in on both sides of the issue.
More than 100 retailers including Wal-Mart, Target and key trade associations are launching a new coalition to fight the proposal.
Billionaires Charles and David Koch, who donate generously to Republican campaigns, are vocal critics of the plan. The Koch family has been in the oil refinery business for decades.
At least two business coalitions support the plan. One includes business giants General Electric, Dow Chemical, Boeing, Eli Lilly & Co., Honeywell and Oracle.
“We cannot have a tax code that continues to favor Chinese products over American products, Mexican beef and autos over American beef and autos or foreign oil over U.S. oil,” Brady said. “We still have some work to do.”
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