Border adjustability hanging by a thread

Tax Hot Topics: Border adjustability hanging by a threadThe border adjustability proposal at the heart of the House Republican blueprint for tax reform faces an uphill battle for survival.

As laid out in last year’s blueprint, the proposal would disallow deductions on the cost of imports while excluding export receipts from income. The proposal has proven incredibly controversial and retailers and other major business sectors have lined up against it.

The House Ways and Means Committee held its first hearing to discuss the proposal last month, and three Republican members of the committee, Reps. Mike Kelly, R-Pa., James B. Renacci, R-Ohio, and Eric Paulsen, R-Minn., openly expressing opposition. Three key tax writers revolting over the provision is a bad sign, but Senate and White House objections might be even more damning.

Administration officials have been consistently critical of it, and Democrats recently emerged from a White House briefing claiming that the administration says the proposal is dead. Senate Finance Committee Orrin Hatch, R-Utah, has not definitely ruled it out, but has expressed concerns and Senate Majority Leader Mitch McConnell, R-Ky., has said flat out that he does not believe it can pass the Senate.

House Ways and Means Committee Chair Kevin Brady, R-Texas is desperately trying to salvage it, promising to address concerns. Options include phasing it in slowly, only partially implementing it, or creating exemptions for certain products and services. It may not be dead yet, but House Speaker Paul Ryan, R-Wis., a key supporter, admitted that the House is already considering options for moving forward without the provision.

“Of course, that’s the kind of conversation we’re having,” Ryan said

Dropping border adjustability blows a revenue hole in the Republican blueprint, but doesn’t make tax reform impossible. Key Senate Republicans and White House officials are currently working toward a unified tax reform proposal that could be ready to be unveiled by briefly after the August recess

Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.