Paul Ryan and the White House are barreling toward a tax reform show-down — a face-off that’s becoming all but inevitable as the speaker continues selling a tax plan rejected by Trump officials.
At issue is a controversial pillar of the House GOP tax plan that effectively hikes taxes on imports.
Top administration officials from Treasury Secretary Steven Mnuchin to chief economic adviser Gary Cohn have warned the speaker that they’re not exactly fans of the so-called border adjustment tax — hoping Ryan would take a hint and change direction.
But the Wisconsin Republican is refusing to back off, arguing in recent days that it’s “the smart way to go.” And over the weekend, his key ally on the matter, Ways and Means Chairman Kevin Brady (R-Texas), began circulating talking points encouraging panel members to sell the scheme.
The document, obtained by POLITICO, tries to tap into populist sentiments that carried Donald Trump to the White House, arguing that the provision would end a “Made in America tax” that hurts U.S. manufacturers. It even claims that 80 percent of Trump supporters back the Ryan idea, which the president himself has never fully embraced and even criticized at times.
“I obviously think border adjustment is the smart way to go,” Ryan said at a press conference last Thursday. “I think it makes the tax code the most internationally competitive of any other version we’re looking at. And I think it removes all tax incentives for a firm to move… their production overseas.”
Technically the House, not the White House, has the authority to write tax legislation. But White House officials who say Ryan fumbled the Obamacare repeal bill by not getting enough member input fear the same thing could happen with tax reform. Senate Republicans, after all, have panned border adjustment, and more than a few House Republicans have also voiced concerns.
During an early April meeting with a group of New York-based CEOs, Senate Majority Leader Mitch McConnell told business leaders that the border adjustment tax was dead on arrival, according to two people with knowledge of the meeting. A spokesman could not immediately respond to the account of the meeting but noted McConnell has publicly noted how challenging the bill would be to get through the Senate.
“There is a piece of BAT that is appealing in theory but we don't really feel like it is something in its current form that works in tax reform or is worth the gamble with the economy right now,” said one senior administration official. “Mnuchin has been very clear, in its current form [it] does not work — end of story.”
Ryan’s office declined to comment for this story. But the speaker’s refusal to relinquish his idea is making for mixed messaging to say the least.
Case in point: Cohn and Mnuchin have been assuring skeptical lawmakers that the controversial proposal, known by its acronym BAT, is dead, sources told POLITICO. Just last week, Mnuchin bashed the idea while huddling with centrist Republicans in the Tuesday Group.
Contrast that with the Ways and Means talking points first circulated to members Friday ahead of what’s likely to be a heated Tuesday hearing on the proposal. The document encourages members to pitch BAT as “ending the ‘Made in America Tax’” that “helps American workers and job creators.”
“Our current tax code favors foreign workers and products over American workers and products. It puts special interests before the best interests of hardworking American families,” read the talking points. “By eliminating the “Made in America” tax, our Blueprint ends the penalty on work that’s done in the U.S.—and stops rewarding work that’s outsourced to other countries.”
Under the BAT change to the tax structure, businesses could shield exports from taxation but could not deduct expenses on imports from their tax bills. Ryan and Brady argue this change will stop companies from shipping manufacturing’s jobs overseas by giving them tax incentives to make products here.
A Ways and Means spokesperson noted that committee staff “regularly prepare messaging documents for members on a range of pro-growth tax reform ideas.” The committee did the same last week before its first hearing on tax reform.
But the discussion on the BAT stands out because Republicans are extremely divided on the idea, even some GOP members on the tax committee. While most have tempered their criticism publicly to give Ryan and Brady space to maneuver, a handful are privately worried and hoping the duo drop the idea altogether.
The talking points also caused a small uproar on K Street Monday, as lobbyists trying to defeat the measure realized they still had work to do. Brad Anderson, the former CEO of Best Buy, a company that opposes a BAT, released a statement clarifying his position on the tax after the committee packet quoted him saying that “I’m not sure that the full impact [of border adjustability] would get passed along to the consumer.”
Anderson said his once-supportive remarks were made after “having been given inaccurate information” about the tax. He reaffirmed his current opposition: “The BAT is a new tax on everyday items purchased by hardworking consumers which would lead to significant price increases on essential products and job losses for the retail industry, an industry that is responsible for 42 million jobs in the U.S.”
Critics, which also include big retailers like Walmart and Target, have echoed those very concerns. They argue that consumers will ultimately pay for the tax when retailers raise prices to cover their higher tax bill. That, they say, would mean goods from clothing to cars would become more expensive, hurting middle and lower-income Americans.
GOP insiders say the speaker is the one driving the continued push for a border adjustment tax. The former Ways and Means Chairman has dreamed for years of writing his own tax proposal, but less than 10 months after he finally got his chance, the conference plucked him up to replace ex-Speaker John Boehner.
Sources say he’s taking a very active role on tax issues, more so than he has with other committees.
By some token, the White House shares responsibility for Ryan’s continued push. While Trump initially said “I don’t love” the BAT proposal, and it’s “too complicated,” he later signaled he was open to the idea. That gave Ryan an opening to keep working the idea.
The White House has also, notably, failed to blast the idea publicly, preferring instead to whisper criticism.
That ambiguity, however, appears intentional. A second White House official told POLITICO they don't want unnecessary tension with Ryan right now and don't have any plan to publicly fight with him over a BAT, though they still don't support one. The person argued the White House needs allies in Congress and is not in a position to make new enemies.
"Of all the things we have going on right now, I don't think it is the No. 1 priority around here," the official said of a BAT disagreement with Ryan.
Still, some Ryan allies are wary of a tax fight. They say the speaker has latched onto the idea and doesn’t look inclined to let go, even though it may not be worth the political capital.
Those who support the push say the proposal will look more palatable after Republicans go through the painful exercise of trying to find other pay-fors that don’t frustrate the various stakeholder industries. A major perk of the proposal is that it would haul in $1 trillion over a decade — money that can be used to lower tax rates.
Where else, Ryan’s allies ask, will they find those kinds of savings?
Ryan has said he’s open to considering other options to offset the cost of the bill, but for now he’s forging ahead.
“Tax reform is a process,” Brady told reporters last week when asked why the committee was still talking about border adjustment. “And so, I’ll continue to bring to the table our solutions on how to address that challenge in the current tax code.”
Burgess Everett contributed to this report.