COMMENTARY: Mini-BAT Is Key To Trump Tax Reform Effort

 

The Border Adjustment Tax (BAT) is taking on water on Capitol Hill according to sources.  The proposal has sparked a K Street lobbying bonanza with forces both supporting and opposing the BAT working Capitol Hill to spin the impact of the new tax.  Some are working on marketing a compromise plan informally called the Mini-BAT that may be an idea that saves Trump’s tax reform plan.

The BAT is a tax that only taxes imports and does not tax exports.  Goods made overseas and sold in the United States are subject to a tax.  Goods made domestically and sold overseas are likely taxed by the country that receives the goods, therefore they are not taxed.  This policy, in addition to a lowering of the corporate income tax, will encourage American companies to stay home and produce goods produced by American workers in the United States.

Currently, all companies producing goods in the U.S. are taxed, and then many of those goods are subject to taxation when they land in a different country.  If only goods sold in the U.S. were taxed, then you would be taxing foreign goods sold in the U.S. and goods domestically sold, but not exports.  That would create a territorial system that makes more sense.

Also, this would allow for the Trump tax reform plan to contain a massive reduction in the corporate income tax. Right now the U.S. has the highest rate in the world and lowering the tax to between 15% and 20% would be a boon to companies.

The BAT has the support of Speaker of the House Paul Ryan and President Trump, yet, as we have learned from the failed fight over Ryan’s heath care reform plan, that may not be enough.  Many states that contain large retailers are worried that the tax will hurt constituent companies.

The BAT has hit a roadblock, because the initial offer was a tax that would raise $1 trillion in new revenue.  Conversely, many importers worry that a BAT set too high would hurt the U.S retail sector of the economy.  That is why many are pushing quietly on Capitol Hill for something called a “Mini-BAT.”

Bloomberg reported on March 30, 2017 that  “Congress Weighs Options to Soften Controversial Centerpiece of GOP Tax Plan”.

Ryan and Trump have both called for a heavy corporate tax-rate cut. During his campaign, Trump proposed taking the corporate income-tax rate down to 15 percent. House leaders want to scrap the corporate income tax entirely and replace it with the 20 percent border-adjusted tax on companies’ domestic cash flow.

This is an idea that would have significant support, yet no analyst believes that the House is ready to completely scrap the corporate income tax.  Conservatives would likely trade an abolition of the corporate income tax for a BAT.  What is more likely that the corporate tax rate will be cut and that provides an opportunity for a scaled back BAT to be introduced into the debate.

The Mini-BAT may become a compromise version included in Trump’s tax plan that both Speaker of the House Ryan and House Freedom Caucus (HFC) members can live with.  This new idea may keep tax reform from going down the road of the Ryan health care reconciliation bill that crashed and burned because of infighting and confusion.


Cloakroom Confidential

Cloakroom Confidential

Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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