Top opponents of House Speaker Paul Ryan’s plan to adjust corporate taxes at the border claimed that his tax reform remarks Tuesday were the start of a pivot away from the controversial idea Tuesday and suggested that simple corporate tax rate cuts might be a sufficient alternative.
Ryan conspicuously skirted the issue of border adjustment in a heavily promoted speech at the National Association of Manufacturers, instead choosing to say that there are a “number of ways” of achieving the provision’s goal.
The goal in question is eliminating the incentives that U.S. companies face to move their headquarters into tax havens. Ryan and House Republican leaders have said that border adjustment would end all motives for doing so. The plan would change the current practice of taxing businesses on profits, wherever they are earned, and instead tax sales based on the destination.
It would work by exempting export sales from taxation, but disallowing companies from deducting the cost of imported goods from their taxable income.
Retailers and other industries pushed back fiercely against the concept in recent months, fearing that it would effectively result in a tax on their imports. Border adjustment supporters maintain that the dollar would appreciate in response to the new tax system, canceling out the import tax through greater purchasing power.
One retail representative said Tuesday that Ryan’s omission of the idea from his speech signaled that the negative campaign has worked.
“The relative absence of a robust endorsement for border adjustment was a concession from the Speaker,” said David French, senior vice president for government relations at the National Retail Federation, suggesting that the omission was the first part of a “pivot” by House leadership away from its firm support for the measure.
French’s group has knocking border adjustment, portraying it as a mortal threat to small businesses.
In his speech, Ryan said that “there are a number of ways” to achieve the same goal to which border adjustment was directed, namely stopping the flow of U.S. corporations for lower-tax countries through corporate “inversions” and takeovers, and that those alternatives are part of discussions with the administration.
French said that the best way to discourage companies from leaving the country is simply to lower the corporate tax rate. At 35 percent, the statutory U.S. corporate tax rate is the highest among advanced economies. The average around the world is closer to 22 percent.
The House Republican plan would lower the rate to 20 percent. But that reduction would be paid for in large part by border adjustment, which would raise taxes because the U.S. runs a trade deficit. And Ryan and other leadership figures have said that the low rate alone is not enough to address the underlying problem of corporations looking to shift profits out of the U.S.
A representative for Freedom Partners, a part of the Koch network of political groups that advocates free-market policies and has strongly opposed border adjustment, echoed the idea that lower rates alone would dissuade companies from seeking out jurisdictions with low tax rates. “The best way to make our country competitive is by lowering those rates as much as possible, not imposing new taxes on products Americans buy every day,” a spokesman for the group said.
hIn his own speech at the National Association of Manufacturers gathering Tuesday, Vice President Mike Pence also suggested that low corporate tax rates by themselves would end fix the incentives currently leading companies out of the U.S.
“You know, our corporate tax rate is one of the highest in the developed world, and our outdated system of worldwide taxation penalizes companies for being headquartered here in America. But not for long,” Pence said. “President Trump’s plan: We’re going to cut business taxes to a 15 percent rate so American companies can compete with companies around the world.”