Border tax hits political reality, and only Trump can save it

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When critics ripped compromises made to achieve health-care reform, the Obama White House tartly reminded them that policy experts were not the target audience.

"I'm passing it through the U.S. Congress with people who represent constituents," chief of staff Rahm Emanuel said at the time.

With a vision of a "border adjustment tax" as the linchpin of corporate taxreform, Republicans are now finding out just how difficult it is to usher such a massive change through Congress. Even as the GOP controls both Congress and the White House, the survival of that border-tax vision is very much in doubt.

Many policy experts like the idea of border adjustment for its economic effects. By taxing imports but not exports, it would move the U.S. closer to taxing consumption rather than savings and investment, which in turn would encourage economic growth.

Republican leaders in Congress such as House Speaker Paul Ryan and Rep. Kevin Brady, chairman of the House Ways and Means Committee, like it for another reason, too. Because the U.S. imports and consumes so much, it would raise $1 trillion over 10 years in revenue — enough to help lower the corporate tax rate to 20 percent from the current 35 percent.

But the effects of those changes create political fallout some fellow Republicans find unacceptable. Among other objections, retailers whose imported goods would be taxed have warned loudly that consumers will suffer.

So, Sen. David Perdue of Georgia, a former retail executive, has pronounced border adjustment an economic threat. Sen. Tom Cotton of Arkansas, home base of Wal-Mart, has vowed to fight it.

John Cornyn of Texas, who worries about the effect on oil prices and serves as the Senate's second-ranking Republican, last week pronounced border adjustment "on life support." Those three Republicans alone — if they hold firm — could be enough to sink the idea in a Senate where Republicans control just 52 seats.

Of course, corporate tax reform could pass without border adjustment. But advocates fear that it would not lower rates enough, or shift economic incentives enough, to provide a powerful boost to growth. Advocates of health-care reform offered the same complaints in 2009-10 when the Affordable Care Act, in search of votes, watered down some provisions meant to control costs or enhance affordability.

Such compromises invariably follow attempts to enact sweeping changes to existing economic and legal systems. What works best when the starting point is a blank chalkboard may not be the easiest path to House and Senate majorities.

The Trump White House — a critical variable in determining the fate of any legislation — has not taken a clear stand. As a candidate and since taking office, President Donald Trump has repeatedly called for taxing imports by U.S. companies that leave the country in search of lower-cost manufacturing labor elsewhere.

A border adjustment tax could counter that problem. But so could targeted tariffs. Trump has sent mixed signals on border adjustment itself, calling it "complicated" while not ruling it out.

This week, members of Congress have returned home to hear from constituents about that complicated issue. The longer he avoids a firm stance, the greater the danger of time running out on border adjustment.

CNBC

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