BAT swings back into trade conversation

by Rodney Venis Friday, July 21, 2017
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With apologies to the beloved children’s entertainer Fred Penner, it seems that the BAT came back the very next day.

The BAT came back, they thought it was goner. But the BAT came back, it just couldn’t stay away…

While many believe that the Border Adjustment Tax has been dead for many months, the much feared proposed U.S. import levy  -- which the C.D. Howe Institute estimated would shave a full percentage point off Canada’s GDP -- is back in the news as the Republican Party attempts to move past the wreckage of healthcare reform and onto the 2018 budget.

With most focused on the Trump administration’s list of priorities for NAFTA renegotiation, the controversial Republican measure -- which would effectively add taxes to imports coming into the U.S. while cutting them for exports -- is again on the lips of lawmakers, opponents and yet another complicating factor in the GOP’s stalled legislative agenda.

Related: Loonie higher on NAFTA optimism

Related: Think tank says Trump demands could improve trade environment

The BAT was championed by the highest echelons of Republican Congressional leadership, including House Speaker Paul Ryan and Ways and Means Committee chair Kevin Brady, as a means of securing $1 trillion in revenue to put toward tax cuts and smoothing the way for tax reform through Senate’s arcane reconciliation process.

Related: Top Trump advisor says tax reform will happen in September

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Related: Why tax reform is a game changer

But opposition within the Republican conference, such as Senator John McCain, and a fierce lobbying effort from U.S. retailers, forced Brady to concede recently that the BAT’s unpopularity forced lawmakers to seek alternatives to the tax.

"To their credit, they mobilized quickly and aggressively, and yes, it had an impact," Brady told Reuters.

The problem is that BAT and healthcare reform were the revenue streams helping fund the Republican tax code overhaul. With GOP healthcare reform looking likely to fail for the foreseeable future, that leaves Republicans short a further $1 trilion in savings they were hoping to garner from, according to CNBC, proposed deep cuts in Medicaid and subsidies to help lower-income households buy insurance.

"We're $2 trillion short," said Rep. David Brat, R-Va. "So we've got to get those big trillion pieces in order and then move. If we get tax relief through, that's the prize. Everyone is happy with that one."

While, opposition or no, the prospect of $1 trillion to offset tax cuts would be tempting to House Republicans crafting the first left of tax reform amidst the confusion and recrimination swirling on both ends of Pennsylvania Avenue, even its earliest champion, Speaker Ryan, didn’t mention BAT when he recently said the party was close to consensus on the issue.

That backpedalling has come at a price. Ryan said that cutting the corporate tax rate from 35% to 20% is “very realistic”; White House officials acknowledge that Trump’s proposed 15% corporate rate is unlikely to materialize without the federal deficit increasing.

The president’s team appears to be preparing the ground for a deficit. White House budget director Mick Mulvaney said recently said that Republicans should be willing to accept "short-term increases on deficits" for tax reform to drive economic growth.

That won’t likely sit well with fiscal hawks in the Republican Party, which has vowed to pass a balance budget while increasing defense spending and cutting taxes.

Those fiscal hawks, such as those who form the so-called House Freedom Caucus, fear House Republican leaders and a White House desperate for a win will turn back to the BAT in order to advance tax reform in general.

According to Politico, the Freedom Caucus for weeks demanded House budget writers add a provision to the budget resolution ruling out BAT in any future tax debates. But House Budget chairwoman Diana Black (R-Tenn.) repeatedly rejected the idea, saying the committee’s only job was to provide fast-track authority for tax reform since passing a budget with reconciliation instructions is crucial for getting the issue to passed in the Senate with a simple majority, rather than the usual filibuster-proof mark of 60.

Representative Mark Sanford (R-S.C.) of the Freedom Caucus, in the final moments of a 12-hour budget markup, offered a “poison-pill” amendment to insure the BAT was dead.

“Everybody says border adjustment tax is dead. I think it is, and it seems to be the prevailing viewpoint,” Sanford said. “But you still have the speaker of the House and the head of the committee of jurisdiction behind this. So, it's never over until it’s over.”

Sanford said he felt “compelled” to offer the amendment due to the collapse of the Senate GOP’s healthcare bill.

“I’m not saying there’s a guarantee of a BAT going forward, but increasingly, what I’ve seen over the last couple of days, puts it in that direction,” Sanford said. “That puts myself and others on this committee in a bad spot."

Black, who had been privately urging Sanford not to offer the amendment according to GOP sources, shot down the gambit.

The committee then moved the 2018 fiscal blueprint by a vote of 22-14 with support from every Republican member, including Sandford.

They thought it was a goner but the BAT, once again, came back.

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