Trump, GOP At Odds Over 'Border Adjustment' Tax President Trump and House Republicans want to slash the corporate tax rate. But coming up with a plan may be hard because of disagreement over a "border adjustment tax."
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Trump, GOP At Odds Over 'Border Adjustment' Tax

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Trump, GOP At Odds Over 'Border Adjustment' Tax

Trump, GOP At Odds Over 'Border Adjustment' Tax

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  • <iframe src="https://www.npr.org/player/embed/514650890/514650891" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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SCOTT SIMON, HOST:

On Thursday, President Trump told airline executives that tax relief for corporate America is on the way.

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PRESIDENT DONALD TRUMP: We're going to be announcing something I would say over the next two or three weeks that will be phenomenal.

SIMON: But the border adjustment tax might stand in the way. House Republican leaders want one. The president and some other Republicans are skeptical. NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: There's no doubt that President Trump and House Republican leaders are interested in a border tax. The question is what kind. Trump wants to tax imports to punish individual countries like Mexico and pay for his border wall. House Republican leaders have a much more dramatic approach. They would levy a 20 percent tax on imports from all countries, a border adjustment tax. Texas Congressman Kevin Brady, chairman of the House Ways and Means Committee, is a big supporter.

KEVIN BRADY: Right now, American companies and workers are competing with one hand tied behind their backs because our tax code is so outdated.

YDSTIE: Brady says many of our trading partners use a value-added tax that taxes U.S. goods and services while subsidizing their own exports. That unfairly penalizes U.S. products, says Brady. Leading conservative and liberal economists say that's a mistaken understanding of how the VAT tax works. They say U.S. companies are not disadvantaged. But Brady and House speaker Paul Ryan have proposed a 20 percent border adjustment tax that they believe is necessary to level the playing field.

BRADY: Foreign products shouldn't get a tax break in our tax code. Our proposal eliminates those tax incentives, creates true competition in the U.S.

YDSTIE: And here's the bonus and a key to tax reform - a 20 percent tax cut on all imports would produce an estimated $1.2 trillion in tax revenues over 10 years, enough to offset much of the loss in revenue from the big reduction in tax rates that Republicans want. But rate cuts without that revenue would mean a major increase in federal deficits, causing heartburn for the party's deficit hawks. Now, critics, including some aligned with the big Republican contributors, the Koch brothers, say, wait a minute. To a great extent, U.S. consumers will bear the brunt of a tax on imports. They'll end up paying higher prices for things like imported cars, clothes and food.

Congressman Brady disagrees. He points to economic theory that suggests the dollar would rise and offset that added cost for U.S. consumers. But another heavyweight critic, former Republican presidential candidate Steve Forbes, scoffed at that idea in an interview on CNBC this week.

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STEVE FORBES: The idea that these guys in Washington know what the dollar's going to do in the exchange markets when there's so many zillions of factors determining exchange rates - I mean, the volume, as you know, in currencies each day is over $5.3 trillion. These guys are going to figure that out in its intricacies?

YDSTIE: And, Forbes says, the border adjustment tax is raising unnecessary divisions among Republicans.

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FORBES: So drop it. Do a straight vanilla tax cut. We've done that before.

YDSTIE: And, he says, it works. Most importantly, President Trump has said he doesn't love the border adjustment tax, calling it too complicated. Congressman Brady believes he's making progress on winning over the president. But he acknowledges if he can't convince Trump to accept the border adjustment tax with its $1.2 trillion in revenue, the big tax cuts Republicans want for businesses and individuals could be in danger. John Ydstie, NPR News, Washington.

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