Will Burying the Border Tax Give New Life to GOP Tax Reform Efforts?
Policy + Politics

Will Burying the Border Tax Give New Life to GOP Tax Reform Efforts?

Jose Luis Gonzalez

The Republicans leading the tax-writing committees of the House and Senate made a joint announcement today with top administration officials that after months of discussion and negotiation, they are finally prepared to begin writing the legislation that, they say, will deliver long-promised comprehensive tax reform.

The statement went out under the names of the so-called “big six:” House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady.

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Though it went on for hundreds of words, it offered little beyond very broad statements about what the GOP’s goals would be. That includes “ensuring that ordinary Americans keep more of their hard-earned money and that our tax policies encourage employers to invest, hire, and grow” and to “make taxes simpler, fairer, and lower for hard-working American families.”

However, there was one substantive element of the announcement: GOP leadership appears to have finally accepted that their long-running effort to pass a border-adjustable sales tax has failed.

The plan was a darling of House leadership in particular. It would have moved the United States in the direction many other countries have taken, toward a value-added tax. The idea being discussed on Capitol Hill would have resembled a consumption tax, but only on foreign goods. Though the proposal was supposed to stimulate domestic producers, it ran into significant opposition from different quarters.

President Trump, for example, found the proposal complex and difficult to sell to voters. Companies that rely on imports worried that they would be placed at a disadvantage.

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In the end, the “big six” apparently decided it made sense to drop the proposal. 

“[W]e are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base,” the statement said. “While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside to advance tax reform.”

The members described the work they have done so far as creating a shared “template” for comprehensive tax reform that both the House Ways and Means Committee and the Senate Finance Committee can begin to turn into actual legislation. They also took the somewhat daring step of predicting that the legislation will begin moving through the committee process by this fall.

“Given our shared sense of purpose, the time has arrived for the two tax-writing committees to develop and draft legislation that will result in the first comprehensive tax reform in a generation...Our expectation is for this legislation to move through the committees this fall, under regular order, followed by consideration on the House and Senate floors. As the committees work toward this end, our hope is that our friends on the other side of the aisle will participate in this effort.”

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The president, represented in the release by Mnuchin and Cohn, was described as “fully supportive” of the plan. Democrats, however, were not exactly hopeful that the plan the two committees come up with will be able to find any support on their side of the aisle, complaining that they have already been excluded from the creation of the template.

“It’s disappointing that Republicans are moving forward with a rewrite of our tax code by excluding Democrats from the process,” said Richard Neal of Massachusetts, the top Democrat on the House Ways and Means Committee. “If Republicans continue this partisan process, they are doomed to repeat the same mistakes they have made trying to upend our health care system. It’s time we work together to produce tax reform that benefits the middle class, grows our economy, helps hardworking families, and ensures that the wealthy and big corporations pay their fair share.”