Border adjustment tax dropped from GOP budget plans

WASHINGTON – The retail industry, led by Target Corp. and Best Buy Co., won a major victory Thursday when the White House and Congressional leaders announced that they have "set aside" a border adjustment tax that could have raised the price of imported products and parts by as much as 20 percent.

Pitched as a major revenue source in a Republican-backed tax reform plan, the border adjustment tax also was touted as a key to returning manufacturing jobs to the U.S. by making imported products less competitive.

But the potential impact on consumer prices and jobs in the import-heavy retail sector led to a relentless lobbying campaign that eventually succeeded.

"While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform," said a joint statement by Republican leaders led by House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.).

The border adjustment tax was projected to raise some $1 trillion in revenue over a decade by requiring companies to pay taxes on the full purchase price of imported items and not just on profits from those sales. Exporters, meanwhile, did not have to pay any added tax on the products shipped abroad.

Target called the leaders' joint statement a step forward for overall tax reform.

"We are especially relieved that they confirmed that the border adjustability tax provision is no longer a part of their plan," a spokeswoman said in a statement to the Star Tribune. "Reforming our tax code will encourage greater investment, create more jobs and ensure American companies are more globally competitive. We stand ready to work with Congressional leaders to craft a plan to achieve meaningful tax reform that will benefit American families."

Best Buy declined to comment on the announcement.

Retailers whose inventory comes primarily from foreign suppliers have pushed hard since Donald Trump's election to get the border adjustment tax out of the tax reform discussion. Trump's talk of America First and punishing businesses with foreign operations left retail businesses nervous.

Early in 2017, the Retail Industry Leaders Association and the National Retail Federation started a coalition called Americans for Affordable Products (AAP) that grew to 600 member businesses, including Target and Best Buy.

The coalition's singular purpose was to kill the border adjustment tax. In events around the country and in Washington, AAP cast border adjustability as a poison pill for tax reform because of its potential to raise consumer prices and cost jobs.

"We ran an education campaign," said AAP spokesman Joshua Baca.

In May, Target CEO Brian Cornell testified before the House Ways and Means Committee and excoriated the tax as an intellectual exercise that has not been proved.

"Congress shouldn't tell American families that their budgets are being wagered on an unproven and untested theory," Cornell told the committee.

That apparently won't happen. But Congress and the White House now face the task of finding alternative sources of revenue to fund cuts in the corporate income tax rate and other tax reform measures that the border adjustment tax was supposed to pay for.

Jim Spencer • 202-662-7432