Opponents of a controversial tax on imports weren’t swayed by a five-year transition period proposed Tuesday by House Ways and Means Committee Chairman Kevin Brady.
Brady (R-Texas) had signaled earlier that phasing in the "border adjustment" provision, which would tax imports but not exports in a bid to juice domestic production, was most likely part of a plan to tamp down opposition to the plan.
Opponents gave it a thumbs down anyway.
"Phasing in flawed, unnecessary policy is not a solution; in fact, it is likely to create more problems than it solves," Heritage Action CEO Michael Needham said in a release. "Rather than creating additional economic uncertainty, congressional leaders need to declare the border adjustment tax dead. Only then can a serious conversation on advancing real, pro-growth tax reform move forward."
Americans for Prosperity — a group aligned with the Koch brothers — and import-dependent retailers issued similar statements.
A spokesperson for Brady pointed to previous remarks Brady gave about Heritage Action’s recently announced opposition to his plan.
Brady had noted that the Heritage Foundation previously advocated border adjustment as part of a tax system that would end taxation of the profits U.S. businesses earn abroad and that are already taxed by foreign governments. That is in line with Brady’s proposal in his blueprint.
“That bold tax reform proposal is included in the House GOP Blueprint,” Brady said in a statement.
Committee Republicans were caught off-guard by the timing of Brady’s announcement.
“I haven’t talked to him today about it, he might’ve said something at a meeting I wasn’t at,” Rep. Vern Buchanan (R-Fla.) told reporters. “It’s something we’re going to dig into, the fact that he did bring it up today and find out the impact of that.”
The border adjustment has drawn the most opposition to the House GOP’s tax reform plan so far. Brady has been promising to address opponents’ concerns.
“A very gradual five-year phase-in really resolves a lot of the challenges," he said at an event Tuesday morning.
The conservative-leaning Tax Foundation, which has been supportive of Brady’s tax reform blueprint, estimates that a five-year transition would decrease the amount of money that the provision raises by $220 billion over ten years. As originally drawn, the provision was meant to raise more than $1 trillion to fund other tax cuts.
It’s unclear how much the potential exemptions Brady mentioned for financial services and telecommunications may also decrease the expected revenue.
Likewise, Brady suggested his final draft could allow small businesses to continue to take advantage of the interest deduction for business debt. His blueprint proposes eliminating the deduction in favor of the immediate write off of large purchases made by businesses.
“They often don’t have access to capital markets,” he said during the same public remarks in which he floated his proposal for border adjustment transition.
But advocates of preserving the interest deduction didn’t jump on board.
"When lawmakers set out to reform the tax code, their stated goals were economic growth and simplification. Proposals that eliminate interest deductibility for some businesses and retain it for others, however, fail to accomplish either of these objectives," said BUILD Coalition spokesman Mac O’Brien.
Republicans on Brady’s committee wanted to reserve full judgment until they knew more about what the chairman was proposing. But Buchanan and others sounded encouraged by Brady’s proposal.
“A lot of businesses have told me in reference to that, ‘Don’t just put everything in Day One, give us time to adjust, and we can adjust,’” Buchanan said.
Rep. Mike Kelly (R-Pa.), another committee member, had not heard details but sounded encouraged by the idea of giving importers and the economy time to adjust.
“Huge increases in the cost of products don’t really work well,” said Kelly, who hasn’t taken a stance on border adjustment.
Proponents of border adjustment say that it will drive a rise in the value of the dollar that will offset any increased cost of products caused by the import tax, but critics argue that’s unrealistic.
Rep. David Schweikert (R-Ariz.), a supporter of the border adjustment provision, was curious about Brady’s proposed carve outs
“You would have to design some very unique, hopefully elegant rules” for the exemptions, he said.