Republicans Push Paul Ryan to Back Off Border-Tax Idea

By Richard Rubin and Siobhan Hughes Features Dow Jones Newswires

House Speaker Paul Ryan is facing increasing pressure, including from fellow House Republicans, to drop his plan for a border-adjusted corporate tax.

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He's not budging.

Mr. Ryan's opponents say his insistence on the plan, which would tax imports and exempt exports, is holding up the broader rewrite of the tax system that Republicans hope will be a crowning achievement of their unified control of the federal government.

"If Congress and the White House are seeking consensus on how to approach tax reform, let's acknowledge that the consensus is against the border-adjustment tax," said Brian Dodge, head of public affairs at the Retail Industry Leaders Association, whose members include Target Corp. and other prominent opponents of the border-adjustment plan. "House leaders' obsession with it has become an impediment to getting any form of tax reform done."

Members of the House Freedom Caucus, the most conservative bloc of the House GOP, are urging Mr. Ryan to back down. And more moderate members of the tax-writing Ways and Means Committee -- including Mike Kelly of Pennsylvania, Jim Renacci of Ohio, Erik Paulsen of Minnesota and Pat Tiberi of Ohio -- are wary or outright opposed to border adjustment.

"There's not consensus," Rep. Mark Meadows, a Freedom Caucus leader from North Carolina, told reporters Friday, acknowledging divides within the Freedom Caucus. "It's not that we're trying to kill it. It's just the political reality is that it's dead."

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Republicans say they are still on track to pass a major tax bill this year and that they agree on 80% of the plan. But they haven't released a bill, and intraparty fractures over border adjustment and other revenue-raising provisions are proving challenging. Also, to move a tax bill through the Senate without Democratic votes, they first need to adopt a budget, and that is a task they are still struggling with because of divides over fiscal goals and spending priorities.

Mr. Ryan and House Ways and Means Committee Chairman Kevin Brady released their tax plan nearly a year ago and the border-adjustment feature received little attention at the time. After Donald Trump won the presidential election, it became clear that Republicans would get a chance to shape the tax code the way they wanted, and the border adjustment started getting closer scrutiny.

Retailers and conservative groups pounced, warning of devastating consequences. Enough GOP senators now oppose it to deny the plan a majority. Senate Finance Chairman Orrin Hatch of Utah said this week that he is still open to the idea and wants to hear more details. But he also said that any ideas that can't get a Senate majority are a "waste of time."

Messrs. Brady and Ryan say they are working on proposals to soften the impact of the border adjustment, which opponents worry would drive up consumer prices, especially if currencies don't change in the way economists predict.

"House Republicans continue to work with our Senate colleagues and Trump administration officials, and we will coalesce around a unified Republican tax-reform plan," said AshLee Strong, a spokeswoman for Mr. Ryan.

Their best remaining argument for border-adjustment advocates is that there is no clear Plan B.

The border adjustment serves two important purposes in the Republican plan to lower the corporate tax rate to 20% from 35% and end taxes on U.S. companies' foreign earnings.

Lower rates alone won't prevent companies from leaving the U.S., said Mr. Brady, a Texan.

"Others, if they have solutions that can accomplish those goals, we will be open to working with them on those alternatives," he told reporters Thursday. "We invite anyone who has concerns with border adjustment to bring us their solutions."

Freedom Caucus members are starting to pitch alternatives to the revenue gap, including making cuts in programs such as food stamps or letting tax reductions expire after nine years to try to comply with Senate rules forbidding expedited bills from adding to long-run budget deficits.

Pairing cuts in safety-net programs with corporate and individual tax cuts could be politically toxic, especially in the Senate. Still, it is also the same formula as the House Republicans' health-care bill, which reduces Medicaid spending and lowers taxes on high-income households and health industries.

Rep. Chris Collins (R., N.Y.), supports a border-adjusted tax, or BAT, but he declared it "dead" in an interview this week.

"The Senate won't touch the BAT," said Mr. Collins, a member of the moderate Republicans known as the Tuesday Group. "The White House really seems ambivalent, at best, so I think you can assume there's no BAT coming forward."

(END) Dow Jones Newswires

June 09, 2017 14:05 ET (18:05 GMT)