The White House on Thursday abandoned a proposal to create a border adjustment tax which it had touted as a way of dealing with unfair competition from imports, but was strongly opposed by US industry.
“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,” adminstration officials and Republican legislators said in a joint statement.
They said they were confident they could ensure a level playing field for US exporters and workers “without transitioning to a new domestic consumption-based tax system.”
The statement was issued by White House economic advisor Gary Cohn and Treasury Secretary Steven Mnuchin, as well as senior Republican lawmakers including House of Representatives Speaker Paul Ryan.
However, they said they remain committed to reforming the tax regime, including reducing corporate and personal tax rates.
The Republican Party had proposed a border adjustment in June of last year as a way to raise revenue, boost exports and reduce trade deficits.
The proposal called for taxing goods on a “destination basis,” exempting exports but taxing imports. That was expected to help pay for proposed deep cuts in the corporate tax rate, and thereby encourage companies to repatriate their earnings parked overseas to avoid US taxes.
The International Monetary Fund in April warned that such a tax could violate World Trade Organization rules.
The proposal had also raised hackles among representatives of US industries who feared rising input costs and retail prices, especially those with supply chains linked to Mexico and Canada under the North American Free Trade Agreement.
Matthew Shay, CEO of the National Retail Federation, said Thursday his organization was “very troubled” by the tax proposal, and the danger it posed a multitude of industries had helped scuttle it.
“We happened to be out front on this and leading because we were going to be hurt critically and it was existential,” he told CNBC.
“But there were dozens of other industries that were going to be hurt by this and I think that’s what really turned the tide.”
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