Ryan, Trump moving on to tax reform following healthcare defeat

“And so now we’re going to move on with the rest of our agenda,” Ryan said at a press conference Friday evening after Republican leaders pulled its healthcare bill because the votes were not there to pass it.

“Yes, this does make tax reform more difficult,” Ryan said of the depleted political capital he and Trump are left with following the healthcare repeal and replace setback, “but it does not make it in any way impossible.”
“We will proceed with tax reform, we will continue with tax reform,” Ryan added. “That’s an issue I know quite a bit about; I used to run that committee. I spoke with the president, the Treasury secretary, his economic advisers earlier today about tax reform. So we are going to proceed with tax reform.”

Ryan has championed the inclusion of a border adjustable tax as the foundation of a House GOP reform package that has foreign officials and U.S. retailers worried about its potential effect on imports and exports, while doubts about its compatibility at the World Trade Organization continue to swirl. Analysts have said a ruling against a border adjustable tax as laid out by the House GOP could result in unprecedented trade retaliation being awarded by the WTO, while in the short term trading partners could take actions to counteract any export boosting and import reducing effect the policy may have on the U.S. economy.

The White House, on the other hand, has suggested it will come up with its own tax proposal, and it is still unclear where Trump stands on the border adjustable tax outlined in the House GOP blueprint.
Trump told reporters in the Oval Office also after the vote Friday that the administration and Republicans in Congress will probably be moving forward on tax reform legislation “very very strongly,” adding “that’ll be next; we'll probably be going right now for tax reform."

Meanwhile, in the Senate, Finance Committee Chairman Orrin Hatch (R-UT) said in mid-March that he does not believe a border adjustable tax will be part of the final reform package. He also shot down the idea of holding a hearing on border adjustment in the Senate.

In the House, Ways & Means Chairman Kevin Brady (R-TX), a staunch proponent of border adjustment, said in a statement after the healthcare repeal and replace defeat that “Ways and Means Republicans are moving full speed ahead with President Trump on the first pro-growth tax reform in a generation.”

Brady told Inside U.S. Trade on March 21 that the House could begin moving tax reform forward in the legislative process “very soon.” He added that work on tax reform and healthcare has been moving on “parallel tracks” since the election.

Brady also largely dismissed Hatch’s prediction that border adjustment would not be in the final reform package. “Look, we want the Senate to weigh in on tax reform. At the end of the day, I'm very confident that border adjustability will be a key provision in the final bill,” he told Inside U.S. Trade.

U.S. Trade Representative nominee Robert Lighthizer, during his March 14 confirmation hearing, told Sen. Ben Cardin (D-MD) that he has spent “a lot of time on this issue over the years” — citing prior WTO cases against U.S. tax reform measures — and added: “I don't know what the right answer is, but it is a problem.”

“And my judgment, this equilibrium between direct and indirect taxes. And I don't view it as having any real economic or legal basis,” Lighthizer said. “I think it's so un-serindipitous and — and unfortunate in the point of the United States. So, I would look forward to work with you.”

Cardin, promoting his own tax reform proposal — which he called “a progressive consumption tax that is patterned after what is accepted internationally as a border-adjusted ta,” — said that in his view, the House GOP proposal would run afoul of the WTO's distinction between direct and indirect taxes.

“It's difficult to see us winning too many cases in a WTO with something that is an income tax that we call a consumption tax,” Cardin told Lighthizer. “So, I just urge you, in your position, to give a realistic assessment to those of us in Congress as to what is likely to be border adjusted so that long last we can try to set up a level playing field for American manufacturers and producers in the international marketplace as it relates to tax burdens.”
Cardin told Inside U.S. Trade on March 15 he has had private conversations with Lighthizer about the issue, and that Lighthizer “appreciates” his proposal.

“He says he's for border adjustment; he agrees with the WTO being difficult to deal with,” Cardin said, adding that Lighthizer would not comment on the House GOP plan.
Lighthizer, in his written response to a question for the record posed by Senate Finance Committee ranking member Ron Wyden (D-OR), said the different rules for indirect and direct taxes “raises fundamental issues for WTO Members that may rely more on direct taxes rather than indirect taxes for revenue.”

“I am very much aware of the issue and take it very seriously. If confirmed, I look forward to working with you as to the most appropriate approach to address this issue,” he added.
As for timing, Brady said he’s pushing for committee action this spring and to get a tax reform bill passed in the House by the August recess. “And the president made it clear he's anxious as well to get to tax reform,” he added.

Sources have said that for tax reform to have a shot this session, a final vote must come in the first third of 2018 or GOP leaders will be risking a politically sensitive debate too close to the midterm elections that year. Some closely tracking the issue have described that timetable as ambitious, while others believe it is doable.

The common economic thread linking those opposed to a border adjustable tax is their belief that it would dramatically increase the cost of imports, which would force industries reliant on imports to pass increased costs on to consumers or lead to layoffs and potential business closures.

Proponents argue that a border adjustable tax is the only way for the U.S. to resolve a competitive disadvantage it faces when exporting and importing goods to and from the roughly 160 countries that use a value-added tax. They also argue that the net effect of a border adjustable tax will result in the dollar appreciating, which in turn would lower the cost of imported inputs and neutralize the effect of a tax hike on after-tax income.

The border adjustable tax would function like a consumption-based tax that essentially exempts revenue from exports from taxation but generally taxes imports and products consumed in the U.S. It also would allow tax deductions for domestic wages and labor costs. Overall, the plan would have the effect of shifting the tax base to consumption in the U.S., a major overhaul of the federal tax system. — Jack Caporal (jcaporal@iwpnews.com) and Jenny Leonard (jleonard@iwpnews.com)

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