Top Republicans in the House of Representatives are prepared to begin public hearings next week on an effort to overhaul the nation’s tax code, which threatens to divide Republicans in Congress for the second time in the opening months of President Donald Trump’s administration.
Republican Rep. Kevin Brady of Texas, chairman of the powerful Ways and Means Committee, which oversees the nation’s tax policy, is prepared to learn from the mistakes of the failed effort to repeal parts of Obamacare. A comprehensive tax overhaul has not been achieved since President Ronald Reagan’s administration.
Instead of devising a tax bill behind closed doors with minimal public input, Brady is prepared to hear weeks, possibly months, of intricate testimony and conversations before lawmakers vote on legislation that could slash personal income taxes for the wealthy, cut corporate tax rates and perhaps impose a 20 percent border tax on goods made in other countries.
“My constituents are 10 times more fired up for tax reform than anything else,” Brady said in an interview with McClatchy.
But while Brady and House Speaker Paul Ryan, R-Wis., are trumpeting their tax plan, released last year during the presidential campaign, most Republicans in Congress are silent, waiting for Trump to take a firm stance on the proposed border adjustment tax.
My constituents are 10 times more fired up for tax reform than anything else.
Rep. Kevin Brady, R-Texas
Brady is a major supporter of the idea. He argues that the tax on imports would put the United States on a level playing field with other countries and would raise an estimated $1 trillion in revenue to lessen the burden of a tax overhaul on the federal budget.
The revenue generated by a border adjustment tax would allow the tax overhaul to be revenue neutral, so the bill would need only a simple majority in the Senate to pass, a necessity when Republicans hold 52 seats in the upper chamber.
“Most Americans – and, frankly, many lawmakers – don’t recognize our competitors have a huge advantage over American companies and workers because they all border-adjust their taxes,” Brady said. “No member of Congress supports tax breaks for foreign products or encourages jobs to move overseas.”
But the effects of the proposed border adjustment tax vary, depending on who’s talking.
The American Made Coalition, a group that represents a few dozen large exporters who support the border adjustment tax, says the tax overhaul would increase the spending power of an average American family by $4,600 a year. The Club for Growth, a conservative organization that does not support the border tax, says the tax on imported goods would increase expenses by $1,700 a year for the average family. Two groups backed by the Koch Brothers also oppose the tax.
Big importers like Wal-Mart do not support the border adjustment tax, arguing that it would result in higher prices for consumers. Companies like Boeing that build products in America and sell them overseas are more supportive of the tax, saying it would allow them to compete with foreign manufacturers.
“The political messaging coming from Kevin Brady and Speaker Ryan is truly horrible,” said Andy Roth, vice president of government affairs for the Club for Growth. “What the BAT basically says is, ‘Let’s tax working families when they buy basic necessities and let’s use that money to pay for large tax cuts for the rich.’ ”
Brady rejects that argument, but an exchange at a recent town hall meeting just south of Dallas illustrates how tough it is to explain the border adjustment tax to the average voter. Fellow GOP Rep. Joe Barton tried, and struggled.
“The controversial part is a border adjustment tax,” Barton said at the forum. “There’s a debate about that, but I’m not enough of an economist who knows exchange rates.”
“But we’re going to pay 20 percent more for goods at the store?” one voter asked in response.
Barton hasn’t taken a public position on the proposed tax.
Major U.S. companies have, even as Republicans in Congress wait for Trump to make a move. Big importers like Wal-Mart do not support the border adjustment tax, arguing that it would result in higher prices for consumers. Companies like Boeing that build products in America and sell them overseas are more supportive of the tax, saying it would allow them to compete with foreign manufacturers.
The border adjustment tax isn’t the only portion of a tax code overhaul. The plan aims to simplify the filing process by implementing three individual tax rates – 12, 25 and 33 percent – along with lowering the corporate tax rate from 35 to 20 percent. Brady and Ryan argue the average American would be able to file their taxes on a postcard-sized form.
The overhaul also would repeal the tax on transfers of the estates of deceased people, known by detractors as the “death tax,” and would eliminate all tax deductions except for those for mortgages and charitable giving.
But it’s the border adjustment tax that causes disagreement among Republicans. Some of Brady’s fellow Texans, including Sen. John Cornyn and Rep. Roger Williams, are highly skeptical or opposed to the tax.
But Brady is prepared to move ahead even if the White House hasn’t decided whether to back his plan.
“We’ll be announcing hearings when we return and we’ll continue discussions with the Trump tax team as well,” Brady said. “We’re going to tackle the major provisions of the blueprint, hold the bill up there and have witnesses.”
Brady’s willingness to lead a politically contentious fight could have ramifications in his district, which extends north from the suburbs of Houston. He won re-election last fall with 53 percent of the vote after being challenged by three conservative Republicans in a primary, and his public role in a national tax debate could spur another challenge in 2018.
“I think he’s made every effort you could to get the word out,” said Walter Wilkerson, an 87-year-old retired doctor who has led the Montgomery County Republicans in Brady’s district since 1967 and is a supporter of the congressman. “I think you have to make the case as a broader issue, and of course that’s always difficult because there’s a whale of a difference between campaigning and governing.”
Framing the tax debate as a broader issue is exactly what the American Made Coalition is doing, as it seeks to challenge anti-border-adjustment-tax groups that are running ads across the country targeted to specific members of Congress they deem likely to oppose the tax if public pressure increases.
“We have been up on TV in D.C. and nationally,” said American Made Coalition spokesman John Gentzel. “Our effort is focused on providing a truthful look at the House blueprint and what’s actually being proposed.”
Even though Brady wants to start the legislative levers on a tax overhaul immediately, he knows that hard negotiations with Congress take more than the 18 days it took for the health care bill to fail.
“When it comes to tax reform, which is a once-in-a-generation opportunity, I’m not focused on the month, I’m focused on the year of 2017,” Brady said.
CORRECTION: A previous version of the story incorrectly said that the Club for Growth is backed by the Koch brothers. The Koch brothers support two other groups that oppose the border adjustment tax, Americans for Prosperity and Freedom Partners.