Time to get right with your God, America, because the end times must be upon us: Paul Ryan is taking on the Koch brothers.
In June, House Republicans sketched a “blueprint” for tax reform that would replace taxes on corporate profits with a new system of “border adjustments.” Companies would pay taxes for shipping stuff into the United States, while goods sold across the border would be exempted. The idea, if the GOP could pull it off, would eliminate a host of strategies private equity firms and hedge fund managers deploy to game the tax code. It would also reduce the total amount of revenue the government brings in, allowing Grover Norquist and other anti-tax hard-liners to tout it as a tax cut. It could be seen as a boost to manufacturing, but retailers are panicked about rising costs of imported products.
The Trump administration hasn’t quite figured out how it feels about this idea. In an interview with The Wall Street Journal last month, President Donald Trump criticized the plan as overly complicated. But last week, White House spokesman Sean Spicer offered a simplified version: a 20-percent tax on imports to pay for a new wall along the Mexican border. But the Spicer plan forgets that with the revenue from the new import tax, Republicans want to give giant tax cuts elsewhere, not build a giant wall.
White House Chief of Staff Reince Priebus quickly walked back Spicer’s statement, presenting it as simply one option on a tax-reform “buffet.” Senate Finance Committee Chairman Orrin Hatch (R-Utah) is, at least for the moment, publicly questioning his House colleagues rather than embracing their agenda.
The GOP confusion is mirrored by a scrambling of alliances on K Streets that hasn’t been seen in living memory. “Trump more than any president I’ve seen has created a little bit of chaos within some client rosters. He’s not afraid to pit people against each other,” said one lobbyist who has clients that may wind up on both sides of the issue. When that happens, lobby shops will have to pick which side they’re on. But as long as it’s just a vague concept, that reckoning can wait. “Theres no legislative text. We don’t have a conflict until we have a bill,” he said.
Corporate America has had plenty of intramural matches over the years. But rewriting the tax code is a dozen Super Bowls played all on the same day. Manufacturers, including Boeing, Caterpillar, Honeywell and pharmaceutical companies, have quickly organized to praise the border tax. Retailers, including Walmart, Target and Kohl’s, are trying to kill it. They’re joined by right-wing megadonors Charles and David Koch. In December, Koch Industries ― which imports crude and tar sands oil to be refined in the United States ― said the House GOP plan would “adversely impact American consumers by forcing them to pay higher prices on products … they use every single day.” Prices at the pump, they have warned, would skyrocket, and nothing gets a member of Congress’ attention faster than the flipping numbers at an Exxon station.
One financial industry lobbyist working the House said that Republican members he has spoken to are worried about the political fallout from rising prices. “Members [are] getting worried they will be BTU’d,” he said, referring to a Bill Clinton proposal in the early ‘90s that would have raised energy costs and became a political killer.
There’s talk as a result of a carveout that would exempt the oil industry from the legislation, but Philip Ellender, president of government and public affairs at Koch Companies Public Sector, said the Kochs would still oppose it.
“If there is in fact a carveout for oil ― or any industry ― we will not support it,” Ellender said in an email. “While Koch would benefit, we are opposed to taxing consumers in order to cut our company’s taxes. We agree with Speaker Ryan on the need for comprehensive tax reform, but we do not support a border adjustment tax and his plan as currently proposed.”
Ideology on Capitol Hill tends to become flexible when corporate patrons are on different sides of an issue. But one of the few politicians in Washington who knows where he stands is House Speaker Paul Ryan (R-Wis.). On Thursday, his office blasted out a press release touting the formation of the American Made Coalition, a lobbying and PR front group that presents itself as “a broad collection of industry leaders from every corner of America’s economy.” The coalition is keeping its members anonymous for now, but the group represents manufacturers, and praises the border tax for “removing barriers to economic growth and American job creation,” saying it will eliminate an “obsolete and biased tax system” in favor of a “competitive advantage in the foreign marketplace.”
Retailers have their own front group, Americans for Affordable Products, which decries the border tax, saying it will “make hard-working families pay more on essential products.” The group is already insulting its opponents. “The so-called ‘American Made Coalition’ might as well be labeled the ‘We Will Never Pay Taxes Coalition,’” Americans for Affordable Products said in a press release on Thursday.
No Republican wrestling match concludes without Wall Street getting involved, but for now, the banking industry is keeping a low profile. The border tax would eliminate a host of lucrative tax games that benefit financial firms, but they’re more concerned about bigger taxes entering the conversation. “Financial services ― they don’t know how their global operations will be hit by this,” said one lobbyist. “There’s a lot of companies and industries that are really concerned about coming out against it, because they’re worried there could be another hammer. The hammer for the banks is a financial transaction tax.”
Liberal economists have floated that particular levy for years as a big revenue raiser. By applying a miniscule tax on individual financial trades, the federal government could siphon billions of dollars a year moving through the financial sector. And by shrinking the volume of trading, the system becomes more stable.
Some conservative economists, meanwhile, are downplaying the entire border tax affair. In December, the Tax Foundation, a think tank that has accepted donations from the Kochs among others, declared that the ultimate effect of a new border tax would be effectively nil ― the value of the U.S. dollar would fluctuate in response to the plan, zeroing out its impact.
The biggest winners may prove to be lobbyists. Trump swept into office pledging to “drain the swamp” of special interests in D.C., but so far his administration is proving a godsend for the influence industry. The border tax has already set off a wave of activity, and nobody has even introduced a bill.