Exporters Tout Benefits of Republicans' 'Border Adjustment' Proposal--Update
February 02 2017 - 5:02PM
Dow Jones News
By Richard Rubin
U.S. exporters are starting to put political weight behind a
House Republican tax plan, touting the benefits of "border
adjustment" to investors and forming a coalition to push the
idea.
Companies such as Dow Chemical Co. and Lockheed Martin Co. have
been speaking about the plan's benefits on earnings calls. On top
of that, the American Made Coalition is launching an effort
Thursday to rally support for border adjustment.
The moves by the exporters and other companies escalate a
corporate tug of war against businesses including retailers, toy
makers and oil refiners who are fighting the border-adjustment
proposal, which would tax imports while exempting exports.
"American workers and businesses are not competing today on a
level playing field with foreign competitors because of an outdated
and unfair tax system," said John Gentzel, a spokesman for the
American Made Coalition. The coalition isn't limited to exporters,
and its members include Dow, General Electric Co., Boeing Co., Cook
Medical, Merck & Co. and Pfizer Inc.
Border adjustment has been at the core of the policy dispute in
Washington as Republicans try to make the biggest tax-code changes
since 1986. The proposal could generate about $1 trillion to pay
for cutting tax rates and help prevent the U.S. tax base from
moving abroad; removing it would leave a big hole in the Republican
plan.
But the plan -- pushed by House Speaker Paul Ryan (R., Wis.) and
Ways and Means Committee Chairman Kevin Brady (R., Texas) -- has
drawn pushback from retailers and some conservative groups and
skepticism from GOP senators such as David Perdue of Georgia and
Mike Lee of Utah. President Donald Trump has sent mixed signals on
the idea.
Critics warn that taxing imports could cause companies to have
tax bills that are larger than their profits or force them to raise
prices on U.S. consumers. Retailers -- including Wal-Mart Stores
Inc., Target Corp., Nike Inc. and Gap Inc. -- formed their own
group, Americans for Affordable Products, which launched on
Wednesday. Also on the list is Sears Holdings Corp., whose former
board member Steven Mnuchin is President Donald Trump's pick for
Treasury secretary.
Economists say the importers' worries are overblown because
border adjustment is likely to trigger a rise in the dollar. That
could offset the border adjustment's effect on U.S. companies by
reducing the cost of imported goods and making exports more
expensive overseas.
There are concerns for exporters as well. Because exports
wouldn't count as taxable income and domestic costs would still be
deductible, many companies could end up with losses for U.S.
corporate tax purposes, even if they are still making money. The
prospect of profitable companies paying no taxes poses a political
problem for proponents.
Yet if the losses aren't refundable, companies wouldn't get the
full benefit of the export exemption but could suffer the effects
of the stronger dollar.
The efforts by exporters and other large companies to mobilize
politically and encourage border adjustment suggest either they
don't think the currency would fully appreciate or that there are
other benefits from the rest of the tax plan.
In the long run, the GOP tax plan is likely to encourage
investment in the U.S. as a way to avoid foreign corporate income
taxes, turning America into the "new Luxembourg," said University
of Southern California law professor Ed Kleinbard.
Raytheon Co., which imports less than 5% of its total costs, is
a potential supporter. Chief Executive Tom Kennedy told analysts
Jan. 26. "If there is some type of tax effort or reform put out
that has an advantage relative to exports, we'll more than likely
get a significant tailwind from that," he said.
Gregory Hayes, chairman and CEO of United Technologies Corp.,
told analysts last week that the company would benefit from a
"territorial" tax system that would end taxes on U.S. companies'
foreign profits.
"There is still some question mark around border adjustability.
We are a net exporter, so if that were to remain in place, it's
probably a positive for us," Mr. Hayes said. "But again, there is a
lot of moving pieces in tax reform, and we will be actively
involved with the debate."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
February 02, 2017 17:47 ET (22:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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