Retailers rise up against border tax

Credit: DaytonDailyNews

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Trump US products

Credit: DaytonDailyNews

Key aspect of GOP tax plan draws opposition from Target, Best Buy, others.

The name sounds innocuous enough — Border Adjustment Tax. But those three bureaucratic words could cripple the cherished Republican dream of overhauling the federal tax code for the first time in three decades.

The 20 percent tax, which would be imposed on all goods imported into the United States, would raise the money Republicans need to dramatically lower tax rates for corporations without adding trillions of dollars to the federal debt during the next decade.

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But though House Speaker Paul Ryan, R-Wis., is among the leading advocates of the idea, it has run smack into opposition from major retailers such as Target and Best Buy and automotive companies like Honda, which employs more than 14,000 people in Ohio.

“By definition, if you are putting a 20 percent tax on everything imported that’s a pretty good start for a higher purchase price,” said Edward Cohen, vice president and lobbyist for Honda in Washington, D.C.

“Until we see the whole bill, I can’t tell you exactly how this will come out,” Cohen said. “A border adjustment tax could have significant negative impact on our customers if the rest of the bill doesn’t offset it.”

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In a meeting at the White House Wednesday, executives of major retailers made similar points, warning the import tax would punish American consumers by raising the prices of electronics and other goods manufactured abroad. But without the $1 trillion raised by the tax during the next decade, hopes of lower corporate tax rates could slip from the grasp of Republicans.

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Hubert Joly, Chairman, President and Chief Executive Officer of Best Buy Co., left, and William Rhodes III, Chief Executive Officer of AutoZone Inc., attend a listening session with President Donald Trump and the Retail Industry Leaders Association in the Roosevelt Room of the White House on Feb. 15, 2017, in Washington, D.C. (Photo by Andrew Harrer-Pool/Getty Images)

Hubert Joly, Chairman, President and Chief Executive Officer of Best Buy Co., left, and William Rhodes III, Chief Executive Officer of AutoZone Inc., attend a listening session with President Donald Trump and the Retail Industry Leaders Association in the Roosevelt Room of the White House on Feb. 15, 2017, in Washington, D.C. (Photo by Andrew Harrer-Pool/Getty Images)
Caption
Hubert Joly, Chairman, President and Chief Executive Officer of Best Buy Co., left, and William Rhodes III, Chief Executive Officer of AutoZone Inc., attend a listening session with President Donald Trump and the Retail Industry Leaders Association in the Roosevelt Room of the White House on Feb. 15, 2017, in Washington, D.C. (Photo by Andrew Harrer-Pool/Getty Images)

“You could do comprehensive reform without the border adjustment,” said Alan D. Viard, a resident fellow of tax policy at the American Enterprise Institute and former professor of economics at Ohio State University. “You probably would have higher tax rates.”

The border adjustment tax, which some financial analysts say is not much different from a sales tax or a value-added tax, is just one part of a sweeping House Republican plan unveiled last June designed to scrub away scores of loopholes and preferences from the tax code and substitute a far more simple system.

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The election of President Donald Trump has given Republicans their big chance. If they can use their Senate and House majorities to win approval of a tax bill this year, they have a president who will sign it into law.

“I am convinced we will do tax reform” this year, said suburban Columbus Rep. Tiberi, R-Genoa Twp., who remains undecided about a border tax. “We have a long way to go and if President Trump is not for whatever we do, it will never become law.”

Last month, aides to Trump said the administration was considering a 20 percent border tax on Mexican imports to finance the construction of a border wall. The tax is a variation on the House Republican plan to levy a border tax on imports from all countries.

Republicans claim a major revision of the tax code would jolt an economy they believe has recovered too sluggishly from the depths of the 2009 recession. They maintain it would simplify a tax code so complex that 90 percent of Americans need help in filling out their income tax returns.

And they contend lowering the corporate tax rate while offering corporations a one-time low tax on cash held abroad would unleash new investment in plants and technology.

“The goal is to bring people together to pass pro-jobs tax reform,” said Sen. Rob Portman, R-Ohio, who talked about overhauling the code Thursday with Treasury Secretary Steven Mnuchin. “I think this is the best way to get the economy moving and raise wages.”

But Democrats, many of whom acknowledge the tax code has become mind-numbingly complex for ordinary Americans, warn the tax reductions talked about by congressional Republicans would provide the wealthiest of Americans with a substantial tax savings while raising prices for average Americans.

They argue a border tax would add complexity to the code, not make it simpler. And they fear such massive tax cuts included in the GOP plan would add trillions of dollars in new debt.

“It loses an enormous amount of money and basically all of that money goes to the top 1 percent,” said Harry Stein, director of fiscal policy at the Center for American Progress, a Democratic-leaning non-profit organization in Washington.

So to solve the deficit quandary, Ryan and other Republicans have backed the border tax.

“The revenue impact of the border adjustment is pretty significant within a 10-year window,” Viard said. “Over the long haul it should be revenue neutral.”

In Ohio, lawmakers are being tugged in competing directions. Rep. Steve Stivers, R-Upper Arlington, whose district is near Honda’s assembly plant in Marysville, said, “The people who have a supply chain in the United States love it and the people who have a supply chain outside the United States hate it.”

“The reason we haven’t done tax reform is 30 years is it is really complicated and the last thing we want to do is screw it up and make prices rise,” said Stivers, who also is undecided about the border tax.

Portman, while saying he has “some concerns” about a border tax, said he did not “want to be negative about any proposal out there because we should be encouraging reform.

“But I don’t want to spend the next year squabbling about this,” Portman said. “I want to find a common ground.”

Details of Republican tax plan

*Reduces current six income tax brackets to three

*The new brackets will be 33 percent, 25 percent and 12 percent

*Increases standard deduction from $6,300 a year to $12,000 for singles

*Increases standard deduction from $12,600 to $24,000 for married filing jointly

*Eliminates the Alternative Minimum Tax

*Eliminates all deductions except home mortgage interest and charitable

*Reduces corporate income from 35 percent to 20 percent

*Reduce tax on small pass-through companies from ordinary income to 25 percent

* Reduces taxes on capital gains and dividends to a maximum of 16.5 percent

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