Brady Drew Angerer/Getty Images

Mnuchin Cites Border-Tax Concern as House Panel Seeks Tweaks

As witnesses debated such fine points as the border adjustment tax proposal’s effects on consumer prices and the strength of the dollar, Mnuchin sounded a clear warning about the measure during a separate appearance in Washington.

(Bloomberg) — House Ways and Means Chairman Kevin Brady said he’s open to reviewing parts of the House Republican tax blueprint as Congress looks for a path forward on trying to make U.S. businesses more competitive globally -- even as Treasury Secretary Steven Mnuchin offered his most direct criticism of the plan yet.

“We know there are legitimate concerns -- including from some of our witnesses here today and our colleagues on the other side of the aisle -- about how it will affect American workers, businesses, and consumers,” Brady said Tuesday during a more than three-hour hearing to discuss a controversial proposal for a border-adjusted tax on imports.

Afterward, Brady told reporters that a key point is to “address this transition and design in a way that eliminates those uncertainties and creates that good solid deliberate approach going forward.”

Still, little consensus emerged from the hearing, which featured testimony from Target Corp. Chief Executive Officer Brian Cornell, who’s been fighting along with other retailers and import-heavy industries to kill the proposal. One of the witnesses opposing Cornell was Bill Simon, a former top executive for Wal-Mart Stores Inc., who recently called the retail industry “hysterical” on the issue.

As witnesses debated such fine points as the BAT proposal’s effects on consumer prices and the strength of the dollar, Mnuchin sounded a clear warning about the measure during a separate appearance in Washington. 

“One of the problems with the border-adjusted tax is that it doesn’t create a level playing field,” said Mnuchin, who is playing a key role in shaping legislation with the House and Senate. “It has very different impacts on different companies, it has the potential to pass on significant costs to the consumer, it has the potential of moving the currencies.”

‘If’ Refrain 

The House Republican leaders’ tax plan depends in part on taxing U.S. companies’ domestic sales and imported goods while exempting exports. The concept has faced resistance from President Donald Trump’s top economic advisers as well as criticism among Senate Republicans. 

Mnuchin said during a meeting Tuesday with members of the House Freedom Caucus that he and Trump are inclined to oppose the border-adjusted tax, according to two people familiar with the conversation who asked not to be identified because the meeting was private.

During the hearing, Cornell said the most repeated word was “if” -- in reference to uncertainty about how currency markets would react, the effect the plan would have on consumer prices and the impact more expensive imports would have on business models for different industries. During his opening statement, Cornell said Target’s tax rate would jump to 75 percent from 35 percent, potentially jeopardizing a planned $7 billion investment plan.

“It’s really hard for me to sit here today and craft a business plan,” Cornell said, “when I sit here today and keep hearing if.”

The measure’s supporters say it would lead to a strengthening dollar, which would even out its effect on the price of imported goods.

Simon made clear that a border-adjusted tax would need to be implemented carefully to avoid damaging retailers and raising consumer prices. “If we take the time and do the work and sit down in a group and iron out, lay out what it will look like, I think it will be very successful” for U.S. manufacturing without harming other sectors, Simon said.

Still, Simon warned if the transition rules weren’t done correctly, there could be a slowdown in some imports.

Republican Opposition

Republican lawmakers including Jim Renacci of Ohio and Mike Kelly of Pennsylvania criticized the border-adjusted tax’s potential impact on working Americans. Representative Lloyd Doggett, a Texas Democrat, said the BAT is already on “life support.” 

“There were considerable concerns raised by several Republicans on the committee and all Democrats,” said Brian Dodge, senior executive vice president for public affairs at the Retail Industry Leaders Association, which opposes the BAT. “Anyone who watched this hearing looking to understand if and how this would work in the real world could only be left deeply deeply concerned.”

House Speaker Paul Ryan said May 18 that a border-adjusted tax “should have some kind of an adjustment and phase-in period.”

Importers have brought some suggestions to the Ways and Means committee, such as tax credits for assembly in the U.S. and different ways to phase in the tax on goods brought into the country, Brady told reporters after the hearing.

Retail Meeting

The retail lobby, however, has said it opposes BAT in any form. A group of CEOs from companies that are members of the National Retail Federation is scheduled to meet with Mnuchin and Commerce Secretary Wilbur Ross on Wednesday as part of its lobbying effort against BAT this week, according to BJ’s Wholesale Club Inc. CEO Chris Baldwin who is part of the contingent.

Analysis done by BJ’s shows border adjustment would quadruple its federal tax bill to more than 80 percent, Baldwin said. 

“Ultimately because this will result in significant price increases on important goods and services to consumers, I don’t see how slowing it makes it any better,” Baldwin said. “Consumers will bare the brunt of this change, whether they do it today or over a period of time.” 

The border adjustment portion of the House leaders’ tax plan is estimated to raise more than $1 trillion in new revenue over the next decade -- helping to pay for cuts to the corporate and individual income-tax rates that the GOP also wants. Writing a revenue-neutral tax bill is important to Republicans, who plan to move the legislation through the Senate without any Democratic votes. To achieve that aim, Senate rules require that the bill can’t increase the federal deficit in the long run.


--With assistance from Saleha Mohsin and Billy House.To contact the reporters on this story: Anna Edgerton in Washington at [email protected] ;Matt Townsend in New York at [email protected] To contact the editors responsible for this story: John Voskuhl at [email protected] Alexis Leondis 

© 2017 Bloomberg L.P

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