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Senator Jeff Flake (R - Arizona) has become the latest Republican voice to speak out against the border adjustment tax (BAT) in the House majority's proposed tax reform framework.
Flake took to the Senate floor on March 8 to express concerns with a proposal he said could push up consumer prices, disrupt international supply chains, and damage America's trade relationships.
A key component of the "Better Way" tax reform framework published by House Speaker Paul Ryan (R - Wisconsin) last year, the BAT would adopt a corporate tax provision operating in a similar fashion to other countries' value-added tax (VAT) systems on international trade, whereby a tax would be imposed on imports and tax rebates would be provided on exported goods.
"At first glance, the plan seems simple enough: tax companies here in the United States less, and tax goods made overseas more," Flake said. "According to supporters, this would boost our exports, incentivize companies to locate operations here in the United States, and reduce our trade deficit."
"Unfortunately, it turns out it's not that easy. Looking inward, we simply do not produce everything we need here in the United States. That's why we trade with other countries in the first place. And for the things that we do make here, those products often require inputs from all over the world."
According to Flake, approximately half of the country's imports consist of inputs for US production and manufacturing.
"What will happen if we placed a new 20 percent tax on all imports?" he asked.
"I am certain that I am not the only one hearing that this approach could make everyday consumer products more expensive at the very places middle-class families shop the most," he said.
Indeed, other leading Republicans have spoken in cautious terms about the proposed BAT, including Senate Finance Committee Chairman Orrin Hatch (R - Utah), who told the US Chamber of Commerce last month that more questions than answers surround the proposal.
According to Hatch, these are: "who will ultimately bear the tax (between consumers, workers, shareholders, and foreigners); is border adjustability consistent with our international trade obligations; [and] would adjustments need to be made to ensure we're not unduly increasing the tax burden on specific industries?"
US House of Representatives Ways and Means Committee Chairman Kevin Brady (R - Texas), on the other hand, said in a recent interview on CNBC that a border adjustable tax is "critical for pro-growth tax reform in 2017."
He said that the Republicans' proposed tax would end the situation whereby "our competitors … all border adjust their taxes. We don't. But, we're about the only country left that doesn't, of major size."
After initially appearing skeptical, recent comments by President Trump suggest that he might be coming round to the idea of the BAT. However, it is becoming clearer that support for the proposal within Republican ranks is not as widespread as Ryan and Brady (who will lead tax reform efforts) had hoped.
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