By Bill Lambrecht, Washington Bureau
WASHINGTON — A radical plan for a 20 percent border tax on imported goods to the U.S. is drawing opposition from a new alliance of major American retailers, complicating a drive by House Republicans to engineer the biggest tax overhaul in decades.
A week after being caught in the confusion of President Donald Trump’s feud with Mexico, the far-reaching proposal that also slashes corporate income taxes drew fire from the likes of Walmart, Target and Macy’s, along with questions from GOP senators.
“What is this going to do in every community in Texas if Walmart has to raise prices?” asked David French, chief lobbyist for the National Retail Federation. “It’s more money consumers don’t have to spend on other things.”
The 20 percent border tax bandied about by the White House as a means to pay for the Southwest border wall would apply to imports from every nation, the centerpiece of a plan Republicans argue would end the “made in America” tax that plagues exporters. The term loosely applies to value-added taxes applied to imported goods in other countries.
Battle lines began drawing in earnest last week for a high-decibel lobbying battle that pits companies relying heavily on imports against exporters feeling wronged in global trade.
U.S. Rep. Kevin Brady, R-The Woodlands, the House Ways and Means Committee chairman and a main architect of the plan, declared that he had secured backing from a potent business alliance that includes Boeing, General Electric, Dow Chemical, Eli Lilly and Pfizer.
On Friday, Brady responded to audience questions after a speech in Washington by saying he expects to accommodate many of the concerns he is hearing.
“For those who are in a bit of a hysteria, not so much,” he added.
“Everybody needs to understand this: We are not going to continue a tax code that favors foreign products over U.S. products or that keeps in place incentives for companies and research and manufacturing to leave the U.S,” he said.
Brady and GOP allies have worked for five years on their far-reaching proposal, which they unveiled in June, a time when analysts gave Trump a 20 percent chance of getting elected.
Now, with Trump unexpectedly in the White House, they hope to seize the opportunity, which Brady said Friday “may not come again.”
Their proposal, being drafted into legislation, has a most appealing feature for corporations: a huge income tax cut, from 35 percent down to 20 percent.
To make up the billions in lost revenue, the plan proposes a so-called border adjustment tax — the 20 percent levy on imported goods — a taxing method in widespread use around the world.
In an interview, Brady said House Republicans intend to do what China, Mexico and other nations do in global trade.
“More than 100 of our competitors adjust their border taxes. They take their VAT (value added tax) off coming to the United States, and they put that tax on ‘made in America’ products coming into their country,” he said. “Today, through our own tax code, we favor foreign products over American products.”
The plan also has the goal of stemming the practice of companies establishing foreign headquarters and keeping money offshore.
In addition to retailers’ opposition, Brady’s plan is drawing fire from the American Fuel and Petrochemical Refiners Association. Other critics include David and Charles Koch, whose conglomerate based in Wichita, Kansas, relies heavily on exporting.
Supporters argue that the disadvantage for importers would disappear when currency exchange rates adjust to an increased demand for U.S. exports and the reduced demand for foreign products. A significant increase in the value of the dollar would enable importers to buy their goods more cheaply, they say.
Some economists agree, but the issue remains a hot topic of conversation.
“Some of my colleagues here think exchange rates will adjust to offset any impact on trade,” said Rob Scott, an analyst with the left-leaning Economic Policy Institute.
Echoed Alan Cole, an analyst with the independent Tax Foundation in Washington: “It will end up being a wash.”
French, of the National Retail Federation, said the retailers he represents aren’t inclined to accept that thinking.
“If the exchange rates equal out, then there’s no impact on importers. But our expectation is that in the real world, it doesn’t even out as economists would like us to believe,” he said.
French presaged what people might well see in 30-second ads when lobbying grows intense: retailers warning of a 30-cent or more increase for a gallon of gas; a 15 percent increase for clothing; and coffee prices suddenly 15 percent higher.
Trump is sending mixed messages. Brady’s goals of tackling trade inequity and wrangling companies into keeping operations in the U.S. square with candidate Trump’s hard-line messages aimed at China and Mexico. Brady said his plan and Trump’s were 80 percent in agreement.
But just before taking office, Trump made would-be reformers nervous by labeling the border adjustment tax “too complicated.” The U.S., he added in a Wall Street Journal interview, could get “adjusted into a bad deal.”
Then, by saying the border tax could be a means to extract money from Mexico, Trump appeared to signal support. But he could have done harm to the plan by linking it to the emotion-charged issue of the border wall.
“It is easy with these discussions to confuse tax policy with trade policy; they’re becoming interwoven,” Brady said in his interview. “They seem to be on the same side of the ledger. They’re not.”
Trump also invited ridicule by economists, among them Donald Marron of the Urban Institute think tank.
“If you get into the rhetorical game of saying this will lead to Mexico paying for the wall, then you back yourself into questions like, what is China paying for? What is Germany paying for? And what are Japan and Vietnam paying for?” Marron said.
“And assuming that the wall eventually gets built, what is Mexico paying for then?” Marron asked.
U.S. Peter Roskam, R-Ill., will be alongside Brady in the fight as chairman of the Ways and Means subcommittee handling taxes.
“It’s going to be very helpful when President Trump engages specifically on this,” he said. “My prediction is that when he and his team look at all the options in the larger picture, they’ll say, ‘We’re on board. Let’s go.’”
Skeptics will come around, he argued.
“We basically have a tax code that is dissolving beneath us and sending jobs overseas. We can either sit here and watch it or do something about it. We’re saying let’s stop the hemorrhaging; let’s flip the game board on the whole thing,” he said.