You may have thought the much discussed U.S. border adjustment tax proposal was dead, as not much has been said about it recently, but the Washington Post reports on a Congressional hearing yesterday:
Much of corporate America is in agreement that it would like to see a sweeping overhaul of the tax system — but there is a deep divide about how best to achieve that.
That rift was on display Tuesday as executives testified before the House Ways and Means Committee about a border adjustment tax, a tenet of a Republican tax overhaul blueprint that effectively creates a new levy on imports.
The retail industry has forcefully urged Congress to drop the proposal, which they say will cause their tax bills to soar and, in turn, force them to hike the prices that shoppers see on store shelves. Meanwhile, exporters such as GE, Caterpillar and Boeing have thrown their support behind the idea, which they expect will make it easier for them to invest in their businesses and to compete with foreign rivals.
That's the politics of the BAT. There is also the role of WTO law, which I suspect is not something the politicians are spending much time on, but nevertheless this is a proposal from law prof Itai Greenberg in case anyone is interested in how to implement such a tax consistently with trade rules:
Importantly, two alternative structural approaches to implementing a destination-based cash flow tax could avoid foot faulting over the WTO’s rules regarding facial discrimination with respect to imports and subsidies with respect to exports as described in Part I. The first structural alternative involves expanding the universe of businesses subject to a DBCFT by clearly defining both the base of the new US business tax and its tax nexus requirement as domestic consumption, rather than imposing deduction disallowance or an import tax. I call this the “Greenprint.” The second structural alternative involves adopting a business activities tax, and then enacting a business-level incentive for creating American jobs that is as a legal matter separate from the tax rather than a deduction that is part of the tax. I call this the “American Jobs Credit.” Either approach avoids the facial WTO law concerns raised by the 2005 GIT.
I can imagine that a serious discussion of how to make this tax WTO-compatible will begin in earnest only after the legislation is enacted, challenged at the WTO, and found in violation.
