This is going to get real interesting. The republicans and Trump are going to debate real ideas and the democrats are going to play up their failed ideas as the only alternative to 'chaos'.
Trump Warns on House Republican Tax Plan
President-elect criticizes border-adjustment measure, which would tax imports and exempt exports, as ‘too complicated’
By
Richard Rubin and
Peter Nicholas
Updated Jan. 16, 2017 9:15 p.m. ET
President-elect Donald Trump at Trump Tower in New York on Monday. Photo: Agence France-Presse/Getty Images
President-elect Donald Trump criticized a cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs, creating another point of contention between the incoming president and congressional allies.
The measure, known as border adjustment, would tax imports and exempt exports as part of a broader plan to encourage companies to locate jobs and production in the U.S. But Mr. Trump, in his first comments on the subject, called it “too complicated.”
“Anytime I hear border adjustment, I don’t love it,” Mr. Trump said in an interview with The Wall Street Journal on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
Retailers and oil refiners have lined up against the measure, warning it would drive up their tax bills and force them to raise prices because they rely so heavily on imported goods.
Koch Industries Inc., a conglomerate run by billionaire brothers active in Republican politics, last month said the border-adjustment measure could have “devastating” long-term consequences for the economy and the American consumer.
Independent analyses of the Republican tax plan say it would lead the dollar to appreciate further—which would lower the cost of imported goods, offsetting the effects of the tax on retailers and others.
In his interview with the Journal on Friday, Mr. Trump said the U.S. dollar was already “too strong” in part because China holds down its currency, the yuan. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
The yuan is “dropping like a rock,” Mr. Trump said, dismissing recent Chinese actions to support it as done simply “because they don’t want us to get angry.”
Mr. Trump appears to be breaking with a recent tradition of presidents refraining from comments on the dollar’s level. The dollar is up 4% against a broad basket of currencies since he was elected, and roughly 25% since mid-2014.
The dollar and border adjustment tax are both central issues as Mr. Trump moves to strengthen U.S. standing in the global economy.
The apparent divide between the incoming president and congressional allies underscores the challenge Mr. Trump will face advancing his agenda, and in particular his planned tax cuts.
“Speaker Ryan is in frequent communication with the president-elect and his team about reforming our tax code to save American jobs and keep the promises we’ve made,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan (R., Wis.) “Changing the way we tax imports and exports is a big part of that, and we’re very confident we’ll get it done.”
Mr. Trump and Republican lawmakers have also butted heads over strategies for repeal of the Affordable Care Act, President Barack Obama’s signature domestic policy advancement. Mr. Trump wants to repeal and replace the law at the same time, but congressional Republicans are struggling to figure out the sequencing and content of bills to replace the 2010 law.
The border adjustment is a core piece of the House GOP tax plan released last June. It would generate about $1 trillion over a decade, significantly offsetting the cost of cutting the corporate tax rate from 35% to 20%, according to several independent analyses. Mr. Trump’s plan calls for a 15% corporate-tax rate.
“If you take out the border adjustment, you have to really think about an entirely different reform,” said Kyle Pomerleau, director of federal projects at the Tax Foundation, a conservative leaning group in Washington.
House Republicans are banking on the border adjustment to solve several policy goals. By basing taxation on the location of final sales—not where a company has its investment, intellectual property or headquarters—they aim to curb corporate tax-avoidance techniques such as inversions and shifting of income to offshore tax havens.
‘Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going.’
—President-elect Donald Trump
Under the plan, companies wouldn’t be able to deduct the cost of goods they import, but wouldn’t have to include the revenue from exports when calculating their income.
Companies have been trying to figure out since the election how the border adjustment would affect them. The more they rely on imports—either parts or finished goods—the more vulnerable they are if the dollar doesn’t appreciate as smoothly as the economists project.
In the long run, Republicans say, their plan would give companies incentives to locate jobs and production in the U.S. as a way to avoid foreign corporate income taxes.
“That goes a long way toward solving the problem our new president wants to solve,” Rep. Kevin Brady (R., Texas), the plan’s chief author and chairman of the House Ways and Means Committee, told reporters last week.
Republicans have been promoting their tax plan as an alternative to the “big border tax” that Mr. Trump proposes, which he has described as a 35% levy on goods made by companies that shift production out of the U.S. and then sell back in. Unlike the border adjustment, Mr. Trump’s suggested levy would only affect imports.
It isn’t clear whether such a levy could raise anywhere near the $1 trillion that several independent analyses say the House Republican plan would generate.
On the campaign trail last year, Mr. Trump proposed lowering the corporate tax rate to 15% and in the interview with the Journal on Friday, he seemed to suggest that rate cuts were his preferred mechanism for improving the corporate tax system.
“Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going,” Mr. Trump said. “And you don’t need that plus lower taxes and everything else. And it’s too complicated. They get credit on some parts and not other parts. Where was the part made? I don’t want that. I just want it nice and simple.”
Rate cuts would reduce the incentive for companies to shift profits out of the U.S., the Tax Foundation’s Mr. Pomerleau said. But that still would require rules to prevent companies from putting profits in tax havens and won’t generate enough economic growth to pay for the rate cuts.
If Republicans jettison border adjustment, they need some other way to prevent companies from booking their income outside the U.S., said Warren Payne, a former GOP policy aide at the Ways and Means Committee.
“Tax reform as a whole is complicated,” said Mr. Payne, now an adviser at Mayer Brown LLP. “There are lots of moving pieces and lots of really hard design questions you have to answer.”
—Greg Ip contributed to this article.
Write to Richard Rubin at richard.rubin@wsj.com and Peter Nicholas at peter.nicholas@wsj.com
Trump Warns on House Republican Tax Plan
President-elect criticizes border-adjustment measure, which would tax imports and exempt exports, as ‘too complicated’
By
Richard Rubin and
Peter Nicholas
Updated Jan. 16, 2017 9:15 p.m. ET
President-elect Donald Trump at Trump Tower in New York on Monday. Photo: Agence France-Presse/Getty Images
President-elect Donald Trump criticized a cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs, creating another point of contention between the incoming president and congressional allies.
The measure, known as border adjustment, would tax imports and exempt exports as part of a broader plan to encourage companies to locate jobs and production in the U.S. But Mr. Trump, in his first comments on the subject, called it “too complicated.”
“Anytime I hear border adjustment, I don’t love it,” Mr. Trump said in an interview with The Wall Street Journal on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
Retailers and oil refiners have lined up against the measure, warning it would drive up their tax bills and force them to raise prices because they rely so heavily on imported goods.
Koch Industries Inc., a conglomerate run by billionaire brothers active in Republican politics, last month said the border-adjustment measure could have “devastating” long-term consequences for the economy and the American consumer.
Independent analyses of the Republican tax plan say it would lead the dollar to appreciate further—which would lower the cost of imported goods, offsetting the effects of the tax on retailers and others.
In his interview with the Journal on Friday, Mr. Trump said the U.S. dollar was already “too strong” in part because China holds down its currency, the yuan. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
The yuan is “dropping like a rock,” Mr. Trump said, dismissing recent Chinese actions to support it as done simply “because they don’t want us to get angry.”
Mr. Trump appears to be breaking with a recent tradition of presidents refraining from comments on the dollar’s level. The dollar is up 4% against a broad basket of currencies since he was elected, and roughly 25% since mid-2014.
The dollar and border adjustment tax are both central issues as Mr. Trump moves to strengthen U.S. standing in the global economy.
The apparent divide between the incoming president and congressional allies underscores the challenge Mr. Trump will face advancing his agenda, and in particular his planned tax cuts.
“Speaker Ryan is in frequent communication with the president-elect and his team about reforming our tax code to save American jobs and keep the promises we’ve made,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan (R., Wis.) “Changing the way we tax imports and exports is a big part of that, and we’re very confident we’ll get it done.”
Mr. Trump and Republican lawmakers have also butted heads over strategies for repeal of the Affordable Care Act, President Barack Obama’s signature domestic policy advancement. Mr. Trump wants to repeal and replace the law at the same time, but congressional Republicans are struggling to figure out the sequencing and content of bills to replace the 2010 law.
The border adjustment is a core piece of the House GOP tax plan released last June. It would generate about $1 trillion over a decade, significantly offsetting the cost of cutting the corporate tax rate from 35% to 20%, according to several independent analyses. Mr. Trump’s plan calls for a 15% corporate-tax rate.
“If you take out the border adjustment, you have to really think about an entirely different reform,” said Kyle Pomerleau, director of federal projects at the Tax Foundation, a conservative leaning group in Washington.
House Republicans are banking on the border adjustment to solve several policy goals. By basing taxation on the location of final sales—not where a company has its investment, intellectual property or headquarters—they aim to curb corporate tax-avoidance techniques such as inversions and shifting of income to offshore tax havens.
‘Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going.’
—President-elect Donald Trump
Under the plan, companies wouldn’t be able to deduct the cost of goods they import, but wouldn’t have to include the revenue from exports when calculating their income.
Companies have been trying to figure out since the election how the border adjustment would affect them. The more they rely on imports—either parts or finished goods—the more vulnerable they are if the dollar doesn’t appreciate as smoothly as the economists project.
In the long run, Republicans say, their plan would give companies incentives to locate jobs and production in the U.S. as a way to avoid foreign corporate income taxes.
“That goes a long way toward solving the problem our new president wants to solve,” Rep. Kevin Brady (R., Texas), the plan’s chief author and chairman of the House Ways and Means Committee, told reporters last week.
Republicans have been promoting their tax plan as an alternative to the “big border tax” that Mr. Trump proposes, which he has described as a 35% levy on goods made by companies that shift production out of the U.S. and then sell back in. Unlike the border adjustment, Mr. Trump’s suggested levy would only affect imports.
It isn’t clear whether such a levy could raise anywhere near the $1 trillion that several independent analyses say the House Republican plan would generate.
On the campaign trail last year, Mr. Trump proposed lowering the corporate tax rate to 15% and in the interview with the Journal on Friday, he seemed to suggest that rate cuts were his preferred mechanism for improving the corporate tax system.
“Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going,” Mr. Trump said. “And you don’t need that plus lower taxes and everything else. And it’s too complicated. They get credit on some parts and not other parts. Where was the part made? I don’t want that. I just want it nice and simple.”
Rate cuts would reduce the incentive for companies to shift profits out of the U.S., the Tax Foundation’s Mr. Pomerleau said. But that still would require rules to prevent companies from putting profits in tax havens and won’t generate enough economic growth to pay for the rate cuts.
If Republicans jettison border adjustment, they need some other way to prevent companies from booking their income outside the U.S., said Warren Payne, a former GOP policy aide at the Ways and Means Committee.
“Tax reform as a whole is complicated,” said Mr. Payne, now an adviser at Mayer Brown LLP. “There are lots of moving pieces and lots of really hard design questions you have to answer.”
—Greg Ip contributed to this article.
Write to Richard Rubin at richard.rubin@wsj.com and Peter Nicholas at peter.nicholas@wsj.com
