Economy

Texas will be negatively impacted by a border adjustment tax, study shows

Rep. Kevin Brady, R-Texas, right, accompanied by Rep. Paul Ryan, R-Wis., left, questions Marilyn Tavenner, the administrator of the Centers for Medicare and Medicaid Services, during the committee's hearing on on Capitol Hill in Washington, Tuesday, Oct. 29, 2013.
Rep. Kevin Brady, R-Texas, right, accompanied by Rep. Paul Ryan, R-Wis., left, questions Marilyn Tavenner, the administrator of the Centers for Medicare and Medicaid Services, during the committee's hearing on on Capitol Hill in Washington, Tuesday, Oct. 29, 2013. AP

Texas is among the top 10 states in the country that will be negatively impacted by a proposed border adjustment tax due to its high reliance on imported goods, a new study released on Thursday shows.

The study examined the state-level impact of the border adjustment tax, which would levy a 20 percent tax on all imported goods. States like Texas that rely heavily on manufacturing and imports fared poorly are considered the most sensitive to the border adjustment tax. Other states among the country’s most sensitive include Michigan, Louisiana, Tennessee, New Jersey, Kentucky, South Carolina, Illinois, Georgia and California.

“If a BAT had been in effect in 2014, for example, importers in just three states—California, Texas, and Illinois—would have faced a potential combined $170 billion liability under a 20 percent tax on imports on top of their regular income tax liability,” the study said.

The study was conducted by Americans for Prosperity and Freedom Partners, conservative groups backed by the deep-pocketed Koch Brothers. Americans for Prosperity and Freedom Partners supports the effort to reform corporate and personal income taxes but opposes using a border adjustment tax as a way to make the plan revenue neutral. Making the plan revenue neutral after 10 years keeps tax reform exempt from a 60 vote threshold in the Senate, a necessity when Republicans only hold 52 seats.

Proponents of the tax argue that a stronger dollar will offset the tax burden for imported goods, but the study shows that businesses in Texas will see a 93 percent increase in the total taxes they pay even if the dollar strengthens, which is far from a certainty. In some states, the potential border adjustment tax outpaces the current total of federal business income taxes, meaning the tax burden for businesses more than doubles if the border adjustment tax is implemented.

Another industry the study says will be highly impacted by the proposed tax is auto manufacturing, which directly employs 11,500 people in Texas.

A few Texans have expressed concerns towards the border adjustment tax, including Sen. John Cornyn and Rep. Roger Williams, who called the tax a “non-starter.” Williams wants massive spending cuts in lieu of a tax on imported goods.

The border adjustment proposal is being trumpeted by House Speaker Paul Ryan and Ways and Means chairman Kevin Brady, also of Texas, as a way to accomplish comprehensive tax reform but President Donald Trump has not issued a public position on the plan.

The nation’s tax code hasn’t been significantly revamped since Ronald Reagan’s administration.

Alex Daugherty: 202-383-6049, @alextdaugherty

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