Donald Trump campaigned on cutting taxes “big league.”
Now in office, he needs Congress to come through and send legislation to his desk.
But Paul Ryan is failing Trump on this key issue, and it could tank him politically.
Part of Trump’s campaign promise was to make America more competitive so companies would not want to ship jobs overseas and make their products in foreign countries.
One of his key proposals was threatening to slap a 35% tariff on products made in Mexico or China if they were to be sold in America.
Rather than go that route, Paul Ryan and House Republicans settled on a border adjustment tax as part of their overall tax reform package.
A border adjustment tax is a value added tax on imported goods.
Investorpedia describes how it would work in practice:
“The border adjustment tax (BAT) levies a tax depending on where a good is consumed rather than where it is produced. For example, if a corporation ships tires to Mexico where they will be used to make cars, the profit the tire company makes on the tires it exports isn’t taxed. However, if an American car company purchases tires from Mexico for use in cars made in America, the money it makes on the cars (including the tires) sold in the U.S. is taxed. In addition, the company cannot deduct the cost of the imported tires as a business expense. The idea of the tax was developed by Alan J. Auerbach in two papers from 1997 and 2010.”
The purpose of the tax is to keep American profits in America.
Since the money is only taxed where goods are consumed, the theory is it will end the current setup of the tax code that favors imported goods, and encourage more domestic production.
But Ryan is failing to sell this to Congressional Republicans.
And without the border adjustment tax, Trump’s tax reform package could fail.
Ryan met with Republicans to make the case for the border adjustment tax, but his presentation did not go well.
Hatch, in an interview after Ryan’s presentation, said the speaker “didn’t cover [the border adjustment proposal] as specifically as I would have liked.” And Sen. Roy Blunt (R-Mo.), the fifth-ranking GOP Senator, said the Finance Committee will likely go a “different way.”
Others were more unequivocal.
“It’s beyond a complication. It’s a bad economic proposition,” said Sen. David Perdue (R-Ga.).
That’s not to mention Ryan’s issue in his own chamber. A handful of Ways and Means Republicans — including some with close ties to Trump — are fretting that retailers slapped with a new import tax will ultimately pass the cost onto consumers. One member of the tax-writing Ways and Means Committee, Rep. Jim Renacci (R-Ohio), asked his chairman Wednesday to hold hearings on the proposal.
The clock is ticking for Ryan. Senior House Republican sources told POLITICO that if the border adjustment proposal is not included in Trump’s tax blueprint, set to be unveiled in the coming weeks, it could be even tougher to rally Republicans to the idea. Supporters of Ryan’s proposal are crossing their fingers that Trump doesn’t introduce a detailed tax plan at all, worried it could complicate their work.
Tax cuts were a central campaign promise.
If House Republicans fail to deliver on their word, it could have disastrous effects on the 2018 midterms.
Those elections are base mobilization contests.
If the GOP fails to deliver on their promises, Republican voters are more likely to stay home, and it could result in Speaker Nancy Pelosi.
If the Democrats win control of Congress, it’s not hard to see them beginning impeachment proceedings against Donald Trump to try and remove him from office or weaken him heading into his re-election campaign.