Proposed Border Adjustment Tax Faces Opposition Home and Abroad

A "boarder adjustment tax" has become a major obstacle to Republicans moving quickly on comprehensive tax reform. House GOP leaders have proposed the "destination-based, cash-flow tax," while President Trump and other Republicans are questioning it.

While the border adjustment tax is backed by a number of economists on both the left and the right, critics in the U.S. and overseas contend that the House Republicans' proposal may violate the World Trade Organization's (WTO) Subsidies and Countervailing Measures (SCM) Agreement that expressly disallows “direct” taxes as a form of prohibited export subsidy, only “indirect” taxes may be “border adjustable.”

House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) have stated they are confident the border adjustment tax proposal passes legal muster, including with the WTO rules.

During his campaign for the presidency, and since his election, President Trump has called for a “big border tax” on imports. At first, it was thought he meant conventional import tariffs levied on goods as they enter the U.S. to pay for the border wall with Mexico and to discourage American companies from moving jobs offshore.

However, the speculation now is whether the Trump administration will instead adopt the border adjustment tax plan penned by Republicans in the House before Trump had secured the GOP nomination for the presidency last July.

From the 30,000 feet level, the border adjustment tax is a tax is levied on imports (goods made overseas but sold in the U.S.), while exports are not taxed (goods made in the U.S. but sold elsewhere). GOP leaders behind the proposal say that, under the current corporate tax system, U.S.-based exports bear the costs of U.S. taxation, while imports do not.

While the border adjustment tax would be new for U.S. taxation, it is not a novel concept, because many countries have “value-added taxes” (VATs). VATs, which are prevalent in the European Union, are a consumption tax effectively borne by the end consumer.

Beyond international trade concerns, the proposal is contentious here in the U.S. Target, Home Depot, Wal-Mart, Nike and other large corporations that import a high volume of goods into the U.S. have unified in opposition to the border adjustment tax plan.

Meanwhile, a coalition of 21 export-heavy companies, including GE, Boeing and Caterpillar, announced yesterday their support for the border adjustment provision.

If the House Republicans drop the border adjustment tax, they will need to find other revenues to offset the proposed tax rate cuts.

Affordable Care Act Repeal and Replacement Starts
The Senate took the first step today toward repealing and replacing the Affordable Care Act (ACA) and fulfilling the Republicans and President-elect Donald Trump’s campaign pledge to gut ObamaCare.

By a party line vote of 51-48, and after six hours of floor debate, the Senate passed a budget resolution that instructs congressional committees to begin drafting and present ACA repeal legislation by Jan. 27. The House is expected to take up the budget resolution as early as Friday. Click HERE for the full story.

Strengthening Career and Technical Education for the 21st Century Act
ILMA members have expressed concerns with their inability to find quality workers to fill a variety of key roles in their businesses. ILMA has sought help on addressing this issue. On September 8, 2016, ILMA, along with multiple other trade associations and businesses, including the National Association of Manufacturers and the Associated General Contractors, sent a joint letter to the House Committee on Education and the Workforce’s Chairman John Kline (R-Minn.) and Ranking Member Bobby Scott (D-Va.), urging passage of H.R. 5587, Strengthening Career and Technical Education for the 21st Century Act.

Click HERE to view the letter.

The bipartisan legislation, which would reauthorize and improve the Carl D. Perkins Career and Technical Education Act of 2006, is sponsored by Reps. G.T. Thompson (R-Penn.) and Katherine Clark (D-Mass.). The measure seeks to bolster career and technical training options to address the national shortage of skilled workers to fulfill key positions. Employers across the country report moderate to serious shortages of qualified applicants for skilled and highly-skilled positions.

The Frank R. Lautenberg Chemical Safety for the 21st Century Act (TSCA Reform)

President Obama signed the Frank R. Lautenberg Chemical Safety for the 21st Century Act into law on June 22, 2016. ILMA has prepared a detailed review of the significant features of the Toxic Substances Control Act (TSCA) reform law. The White Paper can be viewed here.

The president's signature marks an historic moment, as it is the first overhaul of the primary chemical control law in the United States since the TSCA was enacted in 1976, and it is the first significant new environmental law since the Clean Air Act Amendments of 1990.

President Obama noted in his remarks during the signing ceremony that the new law will grant new authorities to EPA to regulate "new" and "existing" chemicals; however, he also highlighted that the new law will also provide industry with the regulatory certainty it needs.

Corporate Tax Reform
The U.S. tax code is antiquated and puts domestic businesses at a competitive disadvantage in a global marketplace. The corporate tax rate is the highest among developed nations and should be lowered to allow U.S.-based corporations to compete on a level playing field. In addition, many small businesses are structured as limited liability companies or other pass through entities and the members pay taxes on an individual basis.  Lawmakers should lower both the corporate and individual rates to allow companies set up both as corporations and pass through entities to compete effectively with their foreign counterparts.