News & Politics

Countering the Real Threat to Tax Reform in the Trump Era

Americans for Prosperity activists protest the BAT tax and support tax reform in Washington, D.C. Photo credit Americans for Prosperity.

While the media remains focused on the Russia allegations and the intelligence leaks, conservative nonprofits are fighting to achieve tax reform in a tumultuous political climate. Republicans once insisted on a divisive measure that might kill overall reform, but conservative groups are pushing for simple and comprehensive reform that would have a fighting chance.

Senate Majority Leader Mitch McConnell warned that tax reform “probably wouldn’t pass the Senate” so long as it included the Border-Adjustment Tax (BAT) proposal championed by Republicans in the House of Representatives. In light of this, and considering the vital importance of tax reform, conservative groups like Americans for Prosperity (AFP) and Freedom Partners have launched a campaign to support simpler tax reform, without the BAT.

Last week, the two nonprofits launched a multimillion dollar campaign “to unite Americans around a positive vision for comprehensive tax reform and advance five key principles for a fairer, flatter and simpler tax code.” The campaign will include paid advertising, direct mail, and grassroots mobilization across the country.

“For too long, the U.S. tax code has given an unfair advantage to the well connected at the expense of the less fortunate. Now is the opportunity to change that,” Freedom Partners spokesman James Davis declared in a statement. “We want to build on that foundation and unite all Americans behind a positive vision that un-rigs the economy, reignites economic growth and expands opportunity for all Americans.”

Davis insisted that the principles at the heart of their proposals mirror the White House’s blueprint for reform. AFP and Freedom Partners have championed five basic principles: simplifying the tax code, making it more efficient at collecting broad-based taxes, eliminating corporate welfare and special-interest handouts, making the tax code more predictable, and preventing further burdens on taxpayers — such as the BAT tax.

The BAT is controversial because it would levy taxes on American companies that import goods from other countries. House Speaker Paul Ryan (R-Wisc.) and House Ways and Means Chairman Kevin Brady (R-Texas) have supported the tax as a way to raise revenue to cover up for decreases in the United States’ high corporate tax rates.

But the plan has met stiff opposition from classical free trade conservatives, and some of the most vocal opposition has come from the network of conservative groups associated with Charles and David Koch, of which both Freedom Partners and AFP are a part.

On Monday, Roll Call reported that the Koch network’s efforts might “sink tax overhaul.” But opposition to the BAT extends far beyond the Koch network, as illustrated by McConnell’s comments. Senator David Perdue (R-Ga.), a former businessman, wrote a letter of protest to Senate colleagues, warning that the BAT is “regressive, hammers consumers, and shuts down economic growth.”

“I’ve said all along, I have real, real concerns with that tax,” Rep. Jim Jordan (R-Ohio) told The Hill. Rep. Scott Perry (R-Pa.) came out against the BAT, declaring, “We’ll continue to stand strong against changes to our Tax Code that fail to put people first.”

Multiple studies have revealed that the economy would suffer under a border-adjustment tax, “even the industries that people assume would be helped by it,” Alan Nguyen, senior policy adviser at Freedom Partners and a co-author of two reports, told PJ Media in an interview on Friday.

The most recent BAT impact report, released by Freedom Partners this month, highlighted the impact of the tax on five separate industries: manufacturing, energy, retail, financial services, and agriculture. This report followed up on an April study that found that the industries the BAT is supposed to most help would actually be harmed by the measure.

“The biggest example is with agriculture,” Nguyen argued. “They don’t import that much, but if you look at retaliation, Mexico could buy corn from Argentina instead of the U.S.”

Even the financial services industry would be heavily damaged, explained Mary Kate Hopkins, senior policy analyst at AFP and a co-author of the report. “Reinsurance is an inherently global industry,” Hopkins argued. While it is hard to quantify “the additional billions of dollars that U.S. insurers would end up paying to get the same kind of insurance they have now,” that is a serious concern.

“Even if the BAT tax were included as a part of a wider tax cut package, it would be substantial enough that these importing companies wouldn’t see a tax cut — and the reform might even feel like a tax hike,” Hopkins told PJ Media.

“Supporters of the border adjustment tax try to make everything very clear cut and say that this would be a clear win for American industry, but there’s a lot of questions involved,” Nguyen said. “It’s a discussion that needs to be had.” There will be a hearing on the BAT tax this coming Tuesday.

The latest report listed many possible impacts of the BAT, including an increase in gas prices by 30 to 40 cents per gallon, an increase in the cost of consumer goods in retail by over $116 billion, and an additional $67 billion in new taxes on manufacturers.

States in the midwest would be hit the most. The industries impacted form a high percentage of GDP in Indiana (42.7 percent), Iowa (41.2 percent), Delaware (39.9 percent), South Dakota (39.8 percent), and Nebraska (34.1 percent). Swing states impacted include North Carolina, Wisconsin, and Ohio.

When it comes to employment, many of the same states face disproportionate impact. Iowa (32.3 percent), Wisconsin (31 percent), South Dakota (30.9 percent), Indiana (29.9 percent), and Nebraska (28.6 percent) would be hardest hit.

While Freedom Partners and AFP firmly oppose a BAT, they support tax reform overall. As Politico reported, the groups’ multimillion dollar campaign to support tax reform is notable because the Kochs expressed deep reservations about Trump during the campaign.

“We’ve been trying to work with Congress as well as the administration to push forward on comprehensive tax reform that will benefit the American people,” Freedom Partners spokesman James Davis told Politico. “This plan aligns pretty well with what the White House has put out so far on comprehensive tax reform.”

AFP and Freedom Partners have pushed BAT-free tax reform, arguing that it is important to present a positive vision of reform in contrast to the divisive BAT measure. In opposing the BAT and emphasizing the conservative opportunities for reform, they would argue that they are salvaging tax reform from an internal threat.

Outspoken BAT opposition in Congress, coupled with Donald Trump’s decision to leave it out of his tax reform agenda and McConnell’s statement that BAT-inclusive tax reform would not pass in the Senate, suggests that the border-adjustment tax is indeed a threat to comprehensive reform.

“We want to unite Americans behind a positive vision of comprehensive tax reform, but this $1.2 trillion tax on consumers is standing in the way,” Freedom Partners spokesman Bill Riggs told PJ Media. “We agree that tax reform should be a top priority, but Americans aren’t going to feel the true benefits if Washington just replaces old burdens with new ones.”

“We believe Congress can accomplish significant, pro-growth tax reform this session, and there’s no reason to undermine that effort with a new tax that would handicap certain sectors of the American economy,” Chris Neefus, spokesman for AFP, told PJ Media.

Contrary to Roll Call‘s assessment, these Koch groups are arguably fighting to save tax reform by killing the BAT. In this tumultuous political climate, the last thing Republicans need is a divisive push on the central goal of tax reform. This issue should unite Republicans, not divide them, and the kind of reform championed by AFP and Freedom Partners would bring tremendous benefits to the American people.