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Conservatives Come Out Against Ryan’s Border Adjustment Tax

Our friend, Club for Growth President David McIntosh recently offered the following statement outlining factors that make for pro-growth tax reform.  In his statement, McIntosh also encourages Republicans to resist implementing a border adjustment tax as part of any tax reform proposal.

“Roughly one year ago this week, House Speaker Ryan unveiled the House Republicans’ blueprint to overhaul the tax code,” Club for Growth President David McIntosh stated.  “In an attempt to craft pro-growth tax reform, Paul Ryanthe blueprint called for lower tax rates and a territorial tax system for international corporations.”

“But, here we are a year later, and Congress has made little progress towards cutting taxes – even though voters overwhelmingly sent Republicans to Washington with a clear mandate to reduce taxes.

“The biggest impediment to pro-growth tax reform is the Border Adjustment Tax (BAT).   It is a political loser.  The BAT has become a ball and chain that is dragging down real, pro-growth tax reform.  The Republican Senate has made it clear that the BAT is a nonstarter.  President Trump’s proposal also wisely sidesteps the issue entirely – choosing correctly to focus on pro-growth tax cuts, rather than middle class tax increases, which would be the inevitable consequence of a BAT.  

“Any member who campaigned on lowering taxes should not even entertain the idea of a BAT.  However, Speaker Ryan and a few members of Congress, like Ways and Means Chairman Kevin Brady (R-TX), continue to push the idea of a border adjustment tax.  Their unwillingness to abandon the proposal now threatens to doom the best prospects Republicans have to pass meaningful tax reform.

“No matter how Rep. Brady and others may try to sell it—like with a five-year transition period—a BAT will effectively be a $5 trillion tax hike on American consumers.  Those in favor of a BAT try to rationalize it by arguing it is necessary to lower tax rates on corporations.   Club for Growth flatly rejects Speaker Ryan’s green eyeshade notion that in order to pass pro-growth tax cuts, Republicans have to raise taxes.  The BAT would do so at the expense of hardworking American families struggling to make ends meet.  Republicans in Congress should not support it.

“Since its inception, Club for Growth has fought to enact tax reform to lessen the tax burden on American families and businesses and in so doing, unleash economic growth.  Just last week, Club for Growth and Americans for Tax Reform made the case for lasting tax reforms by extending the budget window beyond ten years.  And that’s one of many pro-growth approaches to tax reform, but the border adjustment tax is not.”

McIntosh is right, and he’s not alone.

The automotive industry has made it clear that it is strongly opposed to any proposal to adopt a so-called "border adjustment tax," telling USA Today it would raise the cost of cars and hurt both the industry and customers.

The industry, which has been careful to mostly praise the "pro-business" policies favored by the Trump administration, wants to make sure the administration and Congress know it is strongly opposed to a tax on imports, including warnings that it could add as much as $3,000 to the price of a car.

“One of the problems with the border adjustment tax is that it doesn’t create a level playing field,” Mnuchin said at the Peter G. Peterson Foundation Fiscal Summit, according to Politico. Senate Majority Leader Mitch McConnell called border adjustability “controversial” and said it probably couldn’t pass in the upper chamber.

The Heritage Foundation, which backed a BAT in a 2015 report, released a paper urging Congress to pursue a tax reform plan that doesn’t include the proposal reports The Hill’s Naomi Jagoda.

The conservative think tank, which is widely respected by congressional Republicans, argued that the proposal is a “significant economic gamble.” It also noted the political difficulty of implementing a border-adjustment tax.

“Regardless of one’s ultimate view of the economics of border adjustments, it is clear that the current proposal is impeding an otherwise unified effort for tax reform,” the group wrote.

Jagoda reported that one day later after Heritage released its report, House Freedom Caucus Chairman Mark Meadows (R-N.C.) said at an event at Heritage that it’s time to look beyond the border tax proposal.

“There is not consensus for the border-adjustment tax,” Meadows said. “The sooner we acknowledge that and get on with a plan that actually works and actually can build consensus, the better off we will be.”

Our friend Americans for Prosperity President Tim Phillips told The Hill’s Naomi Jagoda that Republicans are in agreement on a host of other tax-related issues. He also said House Ways and Means Committee Chairman Kevin Brady (R-Texas) is “isolated” in his continued commitment to the proposal, since the White House and many Republican lawmakers want to move on.

“The most significant holdup at the moment is Chairman Brady’s insistence on a border-adjustment tax,” he said according to Jagoda.

The members of the conservative Freedom Caucus are split over the border tax, and the group hasn’t formally come out against the proposal. But many caucus members don’t view it as something that can get enacted.

We agree with our conservative friends David McIntosh, Rep. Mark Meadows and Tim Phillips; it’s time to focus on putting together a pro-growth tax reform bill that can pass.

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