Finance Committee chair says Senate will have its own ideas about tax reform, including BAT proposal
Republicans in the Senate and House agree on the major principles for reforming the tax code for individuals and corporations, but the upper chamber is not yet sold on the concept of a border adjustment tax as a way to pay for lower rates and encourage more domestic manufacturing, Senate Finance Committee Chairman Orrin Hatch said Wednesday.
A House Republican plan being pushed by Ways and Means Committee Chairman Kevin Brady and Speaker Paul Ryan would apply a 20 percent tax on the gross revenue of imports sold in the United States without allowing for deductions of most input costs. Exports, by contrast, would not be taxed at all. The mechanism taxes on the basis of cash flow rather than income and, by some estimates, would raise about $1.2 trillion over 10 years to help plug the loss to the Treasury from cutting corporate taxes from 35 percent to 20 percent.
Hatch, who spoke at the U.S. Chamber of Commerce about the Finance Committee’s agenda for the 115th Congress, said he wants to know who will ultimately bear the burden of the border adjustment tax (BAT), whether it’s consistent with the U.S.’s international trade obligations and what adjustments would need to be made to prevent harm to industries that heavily rely on imports before taking a position.
“No one should expect the Senate to simply take up and pass a House tax reform bill, and that’s not a bad thing,” Hatch said. “This is not to say that I plan to oppose or disregard Chairman Brady’s bill when it comes out. Far from it. I am confident that their tax reform plan will provide a strong, legitimate path forward. I’m simply saying that a major concern on tax reform is producing a bill that can get through the Senate, and that is likely going to require a separate Senate tax reform process, which will almost surely end up looking different from what passes in the House.”
The Utah lawmaker noted that Republicans have a small margin for error, with only a 52-48 majority in the Senate, assuming a strict party-line vote and moving tax reform through via budget reconciliation – an expedited process for considering budget bills without the threat of filibuster. But getting unanimous party agreement on most legislation is difficult, especially on something as complicated as tax reform.
“I . . .know that at least a handful of senators have serious reservations about border adjustability, and that requires us to consider the bigger picture,” Hatch said.
The retail and oil industries are two industries that would be hit hard by a BAT.
Retail industry executives say the import tax would devastate many companies that buy goods from around the world and have mounted a lobbying campaign to convince members of Congress that it would be counterproductive.
On Wednesday, a 120 trade associations and businesses, including the Retail Leaders Industry Association and the National Retail Federation, formed a coalition called Americans for Affordable Products aimed at stopping the BAT from becoming law.
“The retail industry pays among the highest effective tax rates of all industries,” RILA President Sandy Kennedy said in a statement. “However, the border adjustable tax is harmful, untested and would put American retail jobs at risk and force consumers to pay as much as 20 percent more for family essentials.”
Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation, wrote a commentary for the Adam Smith Project on his association’s worries about a BAT.
Rep. Brady argues that the current U.S. tax system puts exporters at a disadvantage.
Some experts also question whether the BAT would be considered an illegal form of protectionism under World Trade Organization rules.
Hatch said the Senate is still in the early stages of its tax reform process, but hopes his committee will have a proposal ready in the near future.
The Finance Committee is also the conduit in the Senate for addressing trade issues.
Hatch, a staunch supporter of free trade, lamented that the Trans-Pacific Partnership deal with 11 other Pacific Rim nations did not fully adhere to the high standards Congress laid out in 2015 legislation granting the president authority to fast-track negotiations.
President Trump is the first president in decades to come into office with Trade Promotion Authority in effect and has said he wants to pursue bilateral trade agreements instead of regional deals.
Hatch said he supported that goal, but only if any deals meet standards on labor, the environment, intellectual property protection and other areas spelled out by Congress. Administration policies will also be evaluated on whether they promote economic growth, expand individual opportunity, and increase transparency and the rule of law, he added.
“We have an unprecedented opportunity to modernize and rebalance our trade agenda to more closely reflect our values and economic interests,” Hatch said. “As chairman of the Finance Committee, I am committed to doing all I can to make sure our nation seizes this opportunity.”
To learn more about the BAT, check the Adam Smith Project’s coverage of the issue in January.
Hatch cautions on border tax provision
