Once in a while the people who really run America step briefly out of the shadows to quash an idea that might threaten their interests. Discussion is choked off, and the idea is suddenly off the table.
House Speaker Paul Ryan and the Republicans had an interesting idea called the Border Adjustment Tax, or BAT. It wasn’t just an intellectual lark, but the centerpiece of their ambitious plan to revamp the American tax code. It was a bold idea that would have raised a trillion dollars over 10 years, and would have allowed America’s far too high corporate tax rate to be lowered dramatically, from 35 per cent down to 20 or even 15 per cent, stimulating economic growth and creating jobs. It could have enabled a cut in individual tax rates, too. Because the tax would have fallen principally on foreigners, it was in effect free money for our country.
Did the Democrats scuttle it? Nope. Why would they? The idea originated with a Berkeley economist, and had credibility with liberal analysts. It might well have attracted bipartisan support if it had been voted on by Congress, but it never got to the floor. With only a single day of committee hearings, the Republican leadership threw in the towel, leaving themselves little or no room to cut the corporate tax rate without ballooning the deficit.
The BAT would have supported President Trump’s goal of bringing manufacturing jobs back to America. Companies that import goods would have been taxed more, and companies that export goods would have been taxed less, giving manufacturers a huge incentive to locate factories here.
When Ryan and the Republicans first announced the idea, import-dependent retailers like Walmart and Target were aghast, while American exporters like aerospace companies and the pharmaceutical industry were jubilant. Both sides mobilized armies of lobbyists.
The big retail companies created a pressure group called Americans for Affordable Products, while aerospace and Big Pharma responded with an outfit called the American Made Coalition. Both groups claimed to be protecting the interests of ordinary Americans.
The Border Adjustment Tax was part of a tax reform blueprint that the Republicans released in mid-2016 with great fanfare, and supposedly represented a consensus of Republican thought. Yet though it was backed by Speaker Ryan and House Ways and Means Committee Chairman Kevin Brady, once the anti-BAT lobbyists began haranguing members of Congress, the consensus began to melt away. By the end of May, 30 Republican House members had come out against it.
Leaving nothing to chance, the retail industry sent a delegation of 10 executives to meet with Treasury Secretary Steven Mnuchin, looking to drive a wedge between Congress and the Executive Branch on the issue. A week later, in private meetings, Mnuchin told members that the administration would not support the BAT, effectively killing it.
Ryan and his team soldiered on for two more months, trying to keep the idea alive, but it was no use. At the end of July they joined with Senate and administration leaders to announce that the Border Adjustment Tax was officially dead.
The contrast with another Republican failure, the repeal of Obamacare, is striking. That fight played out in hundreds of raucous town hall meetings in congressional districts across the country, and ended with a nail-biting Senate floor vote. The Border Adjustment fight took place behind closed doors, with no citizen input, and no floor vote.
One set of corporate interests squared off against another. One side won, one side lost. But in the end the biggest loser was democracy.
Lee Todd is an economist who lives in San Marino.
