Borderline

25 Jan 2017 By Gina Chon Follow @GinaChon

Donald Trump wants to hit firms that outsource with a simple levy on imports. GOPers in Congress have pitched a more complex idea built into a corporate-tax overhaul, which might more reliably offset the effects of lower tax rates. The plans create different winners and losers.

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U.S. President Donald Trump on Jan. 23 reiterated his threat to impose a "very major" border tax, which would slap a tariff on companies that manufacture elsewhere and import products back into America. He made the statement in a meeting with chief executives from the manufacturing industry, including Dow Chemical CEO Andrew Liveris. Liveris is head of the Manufacturing Council, which Trump established to advise the U.S. Commerce Department. During his campaign, Trump said the tariff rate could be 35 percent.

Separately, as part of a broad overhaul, Republicans in the House of Representatives have proposed including border adjustments in the corporate tax system. The cost of imports – these could be parts for assembly or items to be retailed in the United States, for instance – would no longer be deductible for tax purposes, while revenue from exports and profit made overseas would be exempt from U.S. tax. The plan would also cut the headline corporate tax rate to 20 percent from 35 percent.

Congressman Kevin Brady, chair of the House committee responsible for tax reform, said on Jan. 24 that the proposal fits into the larger idea of moving to a territorial tax system in which companies are taxed based on where income is earned. "No more incentives for U.S. companies to move overseas," Brady said. "Everything taxed at exactly the same rate in the U.S. - what can be more fair?" The border-adjusted tax would also bring in more than $1 trillion in revenue over a decade, according to the Tax Foundation, offsetting the lower corporate rate.

In an interview with the Wall Street Journal, Trump called the border-adjusted tax too complex but later said he would work with Republicans in Congress to come up with a tax-reform proposal. Certain industries, such as retail, oppose the border-adjusted tax because they say it would drive up their costs. The National Retail Federation said the levy would force its members to raise prices for consumers by up to 15 percent.

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