Donald Trump signals move to border adjustment tax

As US president Donald Trump's battle with the media and controversial orders on immigration continue to dominate the news cycle in Washington, work on his pledge to reform the US tax code is continuing behind the scenes.

Last Wednesday, Mr Trump hosted the chiefs of more than 20 of the country’s top manufacturing firms, including Caterpillar, Dow Chemical, and General Electric at the White House to hear their views on the economy, and tax reform in particular.

The following day, in an interview with Reuters, the president gave his clearest indication yet that he was open to a border adjustment tax.

“I certainly support a form of tax on the border,” he said, claiming that it could lead to “a lot more jobs in the United States”.

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His comments mark a departure from his previous statements when he indicated he was at best luke-warm on the idea, describing it as “too complicated”.

The border adjustment tax – imposing a tax on imports into the United States but exempting exports – is the kernel of the planned Republican revision of the tax code, and one that could have long-term implications for US foreign direct investment in Ireland. Though championed by senior Republicans, such as House speaker Paul Ryan and Texas congressman Kevin Brady, chairman of the Ways and Means Committee, it is meeting resistance from Republicans both in the House of Representatives and the Senate where they have been lobbying politicians from both Houses in recent weeks.

Senior Republican Senator Lyndsey Graham from South Carolina is one of the chief sceptics, tweeting last month: "Simply put, any policy proposal which drives up costs of Corona, tequila or margaritas is a big-time, bad idea."

Consumer prices

His quip captures the nub of the conundrum presented by a border tax – those companies that rely heavily on imports and do not export, such as retailer Walmart, are opposed to the plan, arguing that it will push up the price of goods for consumers; export-focused companies on the other hand are enthusiastic.

With Brady touting a 20 per cent tax on imports , the idea is that this, together with an overall cut to corporation tax rates, will go some way to funding the $1 trillion infrastructure plan flagged by Trump during his campaign. This would tie in with Trump’s plan to boost employment and reignite America’s manufacturing industry.

As of yet, there is very little detail on the plan, though Mr Trump is due to present a budget blueprint by next month, which is expected to outline plans to cut taxes, as well as a healthcare package. He may also give some indications of his plans for tax during his address to Congress on Tuesday.

Treasury secretary Steve Mnuchin indicated a full reform of the tax code would be achieved by August – an ambitious schedule given the vested interest from certain business sectors in any dramatic change in tax law. There are reports the financial services industry, for example, may get a carve-out from any import tax which would exempt their cross-border transactions from the levy – as is the case with VAT in Europe.

Another problem looming for Mr Trump’s administration are the tax implications of a revision of the Affordable Care Act, also known as Obamacare, given that employers are currently permitted to write off tax on employee healthcare contributions.

Reform of the US tax code has bedevilled successive White House administration for years. Whether the White House administration can enact the full range of campaign pledges on tax touted by Mr Trump remains to be seen.