NEW YORK – As President Donald Trump huddles with advisers over plans for a tax overhaul, Congress is considering options to soften a controversial centerpiece of the House Republicans’ tax plan – a step that might mean smaller tax cuts for corporations.
Rep. Kevin Brady, R-Texas, who chairs the House Ways and Means Committee, has said congressional tax-writers are already considering “significant modifications” to a plan that would tax companies’ domestic sales and imports, while exempting exports, a so-called border-adjusted tax, or BAT.
While any changes haven’t been revealed, House leaders’ plan to cut the corporate tax rate to 20 percent from its current 35 percent depends in part on the BAT, a proposal that has sparked opposition from retailers, oil refiners and other companies that rely on imported materials. The border-adjusted component is important because it’s estimated to raise more than $1 trillion in new revenue – helping to pay for the steep rate cut.
Whether Trump would sign on to a modified BAT remains to be seen. He’s scheduled to be briefed Thursday on what may be a wide range of alternatives during a meeting that includes Gary Cohn, the chairman of his National Economic Council. Cohn, a former president of Goldman Sachs Group Inc., is said to oppose the BAT concept in the House GOP plan.
One option under congressional consideration is a “mini-BAT,” said Stephen Moore, an economist who advised the Trump campaign on tax policy. The concept would reduce the tax rate on imports from the 20 percent that Ryan and Brady propose to around 5 percent, Moore said. Domestic sales would still be taxed at 20 percent.
“A BAT is a dead letter at 20 percent,” said Moore, a fellow at the conservative Heritage Foundation who isn’t working for Trump’s White House but said he speaks to lawmakers regularly.
House leaders don’t view the border-adjustment concept as a take-it-or-leave it measure, said Emily Schillinger, a spokeswoman for the Ways and Means panel. She declined to comment on any specific changes that are under consideration.
Ryan and Trump have both called for a heavy corporate tax-rate cut. During his campaign, Trump proposed taking the corporate income-tax rate down to 15 percent. House leaders want to scrap the corporate income tax entirely and replace it with the 20 percent border-adjusted tax on companies’ domestic cash flow.
If the tax applied to imports was reduced to just a single-digit rate, the overall corporate rate would have to be higher – around 26 to 28 percent, said Dean Zerbe, national managing director at tax consulting firm Alliantgroup. That’s provided that Congress wanted to balance rate cuts with new revenue.
Roger Altman, who served as deputy U.S. Treasury secretary in the Clinton administration, also said a corporate rate in the range of 25 to 28 percent was more likely. He deemed the border-adjusted tax likely “dead,” during a Bloomberg TV interview Thursday morning. Altman, founder of Evercore Partners Inc., said there’s a 50-50 chance of a tax overhaul happening in 2017.
Maintaining revenue neutrality is important for Republicans’ hopes of avoiding rules that require 60 votes in the Senate, where they hold a 52-seat majority. If tax cuts were found to add to the deficit, they’d have to be sunset after 10 years or go through the regular-order process, which would mean they’d need some Democrats’ support.
Some Republicans – stinging from the failed health care legislation last week – might opt for the temporary approach. Others might content themselves with shallower rate cuts.
“Folks are more keen on getting a win than anything else,” said Zerbe, a former tax counsel for the Senate Finance Committee from 2001 to 2008.
In the wake of the decision to cancel a vote on the health care legislation last week, Trump’s aides have sought to emphasize that the administration will be “driving the train on tax reform,” as White House Press Secretary Sean Spicer put it this week.
Spicer said Wednesday that “we’re in the beginning phases” of discussing both taxes and another Trump proposal to boost U.S. spending on infrastructure by as much as $1 trillion. The infrastructure plan would depend on both public and private money, Trump has said – though he hasn’t specified a breakdown.
The border-adjustment tax will be among the topics discussed during Trump’s Thursday briefing, according to people familiar with the meeting. The session may be fairly comprehensive.
For example, Rep. James Renacci, an Ohio Republican on the Ways and Means panel, has proposed replacing the corporate income tax with a type of value-added tax – that is, a tax on companies’ sales that would be reduced by credits for the taxes they paid on purchases – at a 7 percent rate.
Renacci, a certified public accountant, said he’s skeptical that the border-adjusted tax would work, and that there’s only mixed support for the concept on the Ways and Means committee. Meanwhile, he said, Cohn has assured him that parts of his plan would be included as options during tax-overhaul discussions.
“I’m happy to hear that they’re going to look at everything,” he said.