The battle over tax reform is well underway on Capitol Hill – and on the opinion pages of every media outlet. Some articles are important and informative. Some are blatant, if harmless, misinformation and misleading. And others are just plain counterproductive to the task at hand: achieving meaningful, broad, and lasting tax reform
One of the latter ran recently in The Daily Caller under the byline of Joanne Butler, a former staffer for the House Ways and Means Committee.
It is clear in the piece and from her background that Butler knows how tax policy works. That makes the tone and the content of the article that much more disappointing. If she knows her stuff, then Butler also knows that, in order to accomplish tax reform, a border adjustability provision needs to be part of the legislative package. Further, she must recognize the impact that removing it would have on the prospects of advancing tax reform in the 115th Congress, and thus on our country’s economic future.
Butler’s piece showcases the same dynamic that has torpedoed meaningful reform of our tax code for decades: an inability or unwillingness to see the forest for the trees.
Myopic focus on one narrow set of interests – in this case, the chemical sector’s import of intermediate goods and a fictional frozen pie made with Canadian sugar – at the expense of the big picture, demonstrates tunnel vision and perhaps even an attempt to derail badly needed comprehensive reform.
As a former Ways and Means staffer, Butler should know today’s political and policy reality. The House tax reform blueprint has been in the works for months, and is – without question – the vehicle through which tax reform will be advanced in the 115th Congress. The measure was developed during the last Congress and has been further honed in the months since. This is not a haphazard piece of policy. It is policy that staff and members of the Ways and Means Committee, with input from Republican Leadership, have devoted countless hours to construct.
A Hill veteran should know that removing the border adjustment tax from the House blueprint is not a simple undertaking. Border tax adjustments are a central pillar of the current package. Take that pillar away and the rest of the structure collapses.
Perhaps most of all, Butler should know that dropping the border adjustment tax would blow a $1 trillion hole in tax reform, and that is a revenue hole that simply cannot be patched without sacrificing countless time-honored provisions. No revenue neutrality means no legislative possibility in today’s Republican-dominated Congress.
There are plenty of political and procedural holes in Butler’s argument, but none of them would matter if she was right about her central assertion that BTAs are a bad idea. She isn’t.
Border tax adjustments, as part of the House plan, represent a dual opportunity to drastically improve our tax code and to catch up to – or surpass – our international competitors in one fell swoop. Such a move is long overdue and sorely needed.
We are one of the only developed nations not to employ some type of border adjustment. And we are one of the only nations not to have transitioned away from worldwide taxation of foreign activity (domestic companies are taxed for foreign activities both in the U.S. and in the jurisdiction where the income was earned), to territorial taxation (a company pays tax only in the country where the income was earned).
Most of our international competitors have already embraced border adjustment and adopted tax policy that helps rather than hinders their own companies. The U.S. tax code is currently positioned with nations like Sudan, North Korea, and Iraq — not exactly progressive economic stalwarts!
It is also important to note that, contrary to Butler’s piece, border tax adjustment is not a de facto tariff, nor does it serve as a subsidy for exporters. BTAs apply the same tax burden across the board – to imports and to goods and services produced domestically. As described by revered tax and budget experts Alan Auerbach and Doug Holtz-Eakin, BTAs are not trade policy, but rather “paired and equal adjustments that create a level playing field for domestic and overseas competition.”
As for the impacts on consumers, money exchange rates are expected to adjust rapidly to a new U.S. tax code, meaning importers will not have a need to pass the cost of BTAs on to consumers. The Treasury Department agrees that BTAs do not have trade impacts, and Mary Feldstein argues in the Wall Street Journal that the expected strengthening of the dollar will insulate U.S. consumers and businesses from added costs. The manufacturing sector seems to agree with this assessment, contrary to Butler’s argument.
Attaining meaningful and successful tax reform is going to take every ounce of political will and policy dedication that is available on Capitol Hill. Butler certainly has every right to express her point of view. But I believe that she is wrong in doing so with such a narrow focus that ignores both the urgent need to reform the tax code, and the procedural and political realities of doing so—and doing so successfully!
Christopher D. Coursen is the a former Republican Majority Counsel for the Senate Commerce Committee, and Chief Counsel of the Communications Subcommittee, and currently is the Pres. & CEO of the Washington DC government consulting firm, The Status Group.