House committee hears clashing views on the impact of a border adjustment tax

There were fresh hints on Tuesday that a proposal by House Republicans for a new tax on imports has a difficult path to becoming law.

At a conference, Treasury Secretary Steven Mnuchin said the so-called border adjustment tax ' doesn't create a level playing field” and 'has the potential to pass on significant costs to the consumer.” Meanwhile, as executives and economists testified before the Ways and Committee about the matter, it was apparent that GOP lawmakers face some resistance to the idea within their own ranks.

Rep. Erik Paulsen, R-Minn., said he can not support the border adjustment tax as it is described in the plan. Another Republican, Rep. Jim Renacci of Ohio, said he is skeptical of the idea, even though he has 'been trying not to be.”

'I'm very concerned for the low-margin companies in my district,” Renacci said.

These would appear to be setbacks for a core tenet of Republicans' wider tax reform plan. The border adjustment tax provides an important stream of revenue that would create room for them to slash taxes in other ways.

Much of corporate America is in agreement that it would like to see a sweeping overhaul of the tax system - but there is a deep divide about how best to achieve that. That rift was on display during Tuesday's hearing.

Brian Cornell, the chief executive of big-box behemoth Target, said in his testimony that he believed Target's tax rate would leap from 35 percent to 75 percent if this proposal were enacted.

That's because the border adjustment tax would prevent companies from deducting the cost of imported goods. Target says it is America's second-largest importer, and that it about half of what it sells comes from overseas.

'We - like many others - would be left with only bad options,” Cornell said.

Cornell argued that the retail industry would be forced to raise prices for consumers if a border adjustment tax were to be implemented.

'Every time your constituents fill up their gas tanks, they would pay more. The people who shop at Target are middle-class working families, whose budgets are already stretched,” Cornell said. 'For them, this new tax would be a budget breaker.”

The committee also heard from Juan Luciano, the chief executive of Archer Daniels Midland, a producer of food ingredients, animal feeds and other items. Luciano's company is part of a coalition of exporters such as GE, Boeing and Caterpillar that supports the tax. Luciano said U.S. businesses in his industry have been losing global market share, and that he believes this tax change could help stop that.

'This proposal offers the chance to give American farmers, American workers and American agriculture the chance to compete fully and to continue providing American products to customers around the globe,” Luciano said.

If Congress were to implement a border adjustment tax, it would mean businesses could no longer deduct the cost of imports from their tax bill. Since retailers rely heavily on overseas manufacturers to make the goods they sell to customers, they worry their tax bills would increase dramatically.

Some economists have been dismissive of these concerns, because they expect that the value of the dollar will adjust under this scenario in such a way that retailers' costs wouldn't actually skyrocket.

But importers tend not to find this particularly reassuring, often arguing that it is uncertain whether this will play out in the real world like it does in the textbooks.

' There's one word that I continue to hear again and again, which is ‘if,''' Cornell said during the hearing.

Opponents of the tax also say that there is a chance the provision could be deemed not compliant with World Trade Organization rules.

Even if a border adjustment tax were to garner broad support in the House, it appears poised to hit stumbling blocks in the Senate, where several Republicans have expressed doubts about the idea.

Sen. David Perdue, R-Ga., for example, said earlier this month , 'Right now, in the Senate anyway, I think the border adjustment tax is dead on arrival.”