Sen. Graham, Other Republican Senators, and Retail Industry Voice Doubts About Ryan's "Better Way" Tax Plan

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February 21, 2017
By: David G. Forgue

The border adjustment tax aspect of Congressman Paul Ryan's (R-WI) "Better Way" tax reform plan appears to be unlikely to be enacted by Congress in the foreseeable future.  The border adjustment tax was intended to balance the U.S. trade deficit(s), increase domestic wages and create jobs, especially for the manufacturing sector, and raise the tax revenue necessary for a commensurate reduction in corporate taxes.  The tax would have operated (within a broader set of reforms) by taxing United States revenue, less United States costs.  However, imports would not be counted as "U.S. costs" so that imports would be taxed and nondeductible, whereas domestic material would be deductible.  The proposed tax rate was 20%.

As importers have attempted to understand what the new tax structure would be, and how to manage it, Senate Republicans have indicated that they have doubts about a border adjustment tax.  Senator David Purdue (R-GA), a former CEO of both Dollar General and Reebok, referred to the proposal as a "regressive" package that "hammers consumers." Senator Cory Gardner (R-CO) expressed concern that the agricultural sector could be jeopardized as U.S. trade partners seek to retaliate against U.S. exports for perceived unfairness in the border adjustment tax regime.  Finally, Senator Linsey Graham (R-SC) indicated that he did not believe that the plan could get "10 votes" in the Senate (which has a 52-48 Republican majority).  

In addition to political figures, retail industry leaders had expressed grave concern over the plan.  This was based on the fact that retail consumable articles are overwhelmingly imported.  Therefore, a 20% tax on these articles would lead to immediate 20% price increases on most goods in retail stores.  

Unless Senate Republicans can be assured that a border adjustment tax will not disproportionately impact retailers and will not leave other industries vulnerable to retaliatory measures, it seems unlikely that a border adjustment tax similar to the "Better Way" proposal will be enacted.