Donald Trump’s surprising election and his promise to overhaul the US tax code set off celebrations across corporate America, but some industries had barely applauded before they began gearing up for a fight.
Trump’s win gave Republicans control of the US government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports (their exports would be exempt).
Cue the alarm bells for import-heavy companies like Wal-Mart Stores, Inc., Target Corp. and Nike, Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called 'border-adjusted' tax. Buttressed by more than 10,000 phone calls to congressional offices by a parody-style TV ad that aired during Saturday Night Live and by a succession of Republicans who’ve expressed concern about the plan, the opponents’ efforts appear to be winning – so far.
The action has now shifted to the White House, which will be “driving the train” on tax legislation, said Press Secretary Sean Spicer. There, the picture gets cloudier. Lobbyists on both sides of the border-adjustment tax issue say that they’re not sure who’ll determine the final contents of the administration’s plan.
Still Early
“Clearly, the retailers getting out so fast and so aggressively early was [an advantage in lining up congressional opposition to Ryan’s plan],” said Gordon Gray, director of fiscal policy for the American Action Forum, a right-of-centre think tank in Washington. It’s still early, he said, “[and] unless we know where the White House is going to come down on it, it’s hard to say who is winning.”
Ryan and Representative Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee, have championed the border-adjustment plan as a way to raise revenue that would help finance tax-rate cuts. Independent estimates have said that it would raise more than $1 trillion in tax revenue over ten years. They also say it would help American-made products compete more effectively in overseas markets, while stimulating more domestic manufacturing.
Those who oppose the border-adjusted tax say that it would lead to higher prices on a range of consumer goods, although supporters say that a strengthening dollar would ultimately even out such effects. Opponents have gained valuable allies in Trump’s administration. Treasury Secretary Steven Mnuchin is said to oppose the border-adjustment concept, as is Gary Cohn, Trump’s top economic adviser.
‘Economic Nationalist’
Meanwhile, Stephen Bannon, the president’s chief strategist, who favours an “economic nationalist” approach, is said to favour the proposal.
The retailers were aided early, when, less than a month into Trump’s presidency, they scheduled the chief executive officers of several retail companies to meet with Cohn, the head of the National Economic Council. Cohn elevated the event to a meeting with the president on 15 February, at which the border-adjustment plan was discussed, according to people familiar with the meeting.
Trump himself hasn’t weighed in yet, and that lack of clarity has left Ryan’s plan without much political cover, leaving it open to attack, said Gray of the AAF.
The main opposition group, Americans for Affordable Products, debuted on 1 February, and now has more than 400 member companies. A flood of CEOs, including that of J.C. Penney, haven’t been shy about lambasting the border-adjustment proposal. Wall Street analysts have also chimed in. “[The concept] would be a really big hit to some companies,” said Scot Ciccarelli of RBC Capital Markets. Retail stocks have declined this year, while the overall market hit new heights.
Fight Continues
“No other issue galvanised the industry like this one,” said Brian Dodge, senior executive vice-president of public affairs for the Retail Industry Leaders Association, one of the groups leading the opposition. “Until the sponsors declare it dead, we will continue to fight against it.”
Opposition to border adjustments also came from Americans for Prosperity, the conservative advocacy group founded by billionaire brothers Charles and David Koch. AFP says that it has placed more than 10,000 telephone calls to members of Congress and made more than 100 visits to district offices in the past six weeks.
The border-adjustment plan has supporters, too. One day after the opposition group made its debut, the American Made Coalition was announced. It has fewer than 30 major companies as members, almost all of them net exporters, but they include household names like General Electric Co., Caterpillar, Inc., and Merck & Co.
Ads Planned
The supporters say that border adjustments would boost domestic manufacturing and reduce incentives for US companies to move jobs overseas. They’re planning to launch new ads this month, as Congress takes a two-week spring recess.
“There’s a lot of tax-reform debate to be had,” said John Gentzel, a spokesman for the supporters’ group. He said that the border-adjustment measure would create 1.7 million new jobs and boost wages by almost 8%. “Meanwhile, the opposition has spent all this time and energy trying to maintain status-quo tax policies that promote foreign-made products over US jobs.”
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