A proposed border tax was killed in the US House of Representatives on Thursday, bringing relief to retailers and other large importers whose profits faced threats and removing a hurdle that had kept negotiations on a Republican overhaul of the US’ tax code from advancing.
The border adjustment tax was part of a broad reform of the tax code being pushed by House Republican leaders.
It was meant to discourage companies from manufacturing products overseas and then importing them into the US for sale instead of producing goods in the US.
The tax would have generated about US$1 trillion in revenue, allowing tax code writers to slash the corporate tax rate without increasing the nation’s deficit.
Removing the controversial provision could make it easier to pass tax legislation, but likely narrows the scope of what could become law.
Its removal suggests that Republicans are more likely to implement simple rate cuts and not accomplish sweeping tax reform on the scale of the last major overhaul in 1986, such as moving to a territorial tax system, in which companies would pay tax only on profits earned in the US.
Without a new source of revenue, it will make it more difficult for Republicans to make tax code changes permanent and deficit-neutral.
Republicans are looking to use rules that would require passage of a tax bill only with a simple majority — meaning they would not need any Democratic votes. Those rules restrict creating long-term deficits, so if the bill is not deficit-neutral, the tax cuts would likely carry an expiration date.
A group of six Republican negotiators working on tax reform on Thursday did not announce any agreement on their target for corporate rate cuts — a signal that tax lobbyists said shows continuing divisions among Republicans about the closely watched rate.
Corporate profits are taxed at 35 percent, but US President Donald Trump wants them slashed to 15 percent, which he has said will promote business spending, economic growth and job creation.
“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,” the so-called “Big Six” Republican tax negotiators said in a joint statement.
Large retailers and other importers had lobbied aggressively against the border tax proposal, including a coalition that included automakers such as Toyota Motor Corp and stores including Target Corp, Autozone Inc and Best Buy Co.
The retailers said that the border tax would drastically increase consumer prices, hitting low and middle-class households the most.
The Big Six is comprised of two Trump representatives, US Secretary of the Treasury Steve Mnuchin and Gary Cohn, the head of the National Economic Council, as well as House Speaker Paul Ryan, US Senate Majority Leader Mitch McConnell and the heads of the two tax-writing committees of the US Congress, US Senator Orrin Hatch and US Representative Kevin Brady.
In addition to killing the border tax, the group offered other goals, but no details, saying that they remain committed to increased expensing for corporations, or allowing them to write off the cost of new equipment more quickly, and to return profits held by US companies overseas, known as repatriation, at a lower tax rate than the current 35 percent.
The statement offered no specific goals or targets on the personal income tax code.
“We have always been in agreement that tax relief for American families should be at the heart of our plan,” the Big Six said.
The US Chamber of Commerce praised the announcement as progress toward an ultimate goal of overhauling the code.
“We’re pleased, but we’re not satisfied until we get an outcome,” said Neil Bradley, the head of policy for the business group.
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