You thought health care divided GOP? Check out a proposed import tax

WASHINGTON -- A proposed import tax at the heart of a broad GOP tax overhaul is dividing Republican lawmakers and conservative groups, making the issue as thorny politically for the party as health care — and maybe more so.

Look no further than Wisconsin.

Championing the idea is House Speaker Paul Ryan, who says it will make U.S. companies more competitive internationally and less likely to move jobs, factories and headquarters abroad.

“We want it to make sense to make things in America, keep your company in America, keep your workers in America,” Ryan said at a recent forum hosted by the website, WisPolitics.com.

But among the deepest skeptics is the state’s Republican U.S. senator, Ron Johnson, who criticized the plan in a recent interview with the Journal Sentinel, saying it would generate “massive tax cuts for corporations, paid for by American consumers — with American taxpayers subsidizing foreign consumers.”

The proposal in question is known as the “border adjustment tax,” and it’s at the heart of Ryan’s effort to cut corporate taxes and overhaul the tax code.

In simple terms, the plan would place a 20% tax on imports, while leaving exports untaxed. The revenue it brings in would help offset a big cut in corporate income taxes, from today’s top rate of 35% down to 20%.

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Ryan and other supporters argue it would level the playing field for U.S. manufacturers selling products abroad and bring America in line with how other countries tax businesses.

“We’ve already put ourselves at a huge competitive disadvantage. The question is do we want to equalize this treatment?” Ryan said at a recent forum. “Today, if it’s produced in America, it’s taxed. If it’s not, it isn’t, effectively.  We want to go to a destination-based tax ... where if it’s consumed in America, it’s taxed. And we don’t care what you (sell) overseas.”

Ryan said that “once people kind of understand what this is, you see lot of minds turning.”

But critics argue it would make imported products more expensive for American consumers and cause economic disruption, producing a new set of winners and losers in the business sector.

There is skepticism and some outright opposition in Ryan’s own party, especially in the U.S. Senate.

“I don’t think it has a chance of passage in the Senate,” Johnson said.

The senator supports a dramatically different approach to tax reform. Of the border adjustment tax, he said: "I would have to be shown a whole lot more information to convince me. … Put me down as highly skeptical.”

Johnson, who helped build a manufacturing company in Wisconsin, suggested a new import tax would create huge complications for companies — even exporters — that import many of the component parts of their finished products. He said in a recent appearance that such a tax would create "an awful lot of micro damage."

The senator added that under the House GOP plan, cuts in corporate taxes would effectively be financed by the higher prices paid by U.S. consumers for imported products.

Conservative advocacy groups disagree over the plan, citing competing studies of the nationwide and state-by-state impact.  The proposal has also divided the business sector, with many retailers and some manufacturers lining up against the idea and other manufacturers supporting it.

A national coalition formed to oppose the border adjustment tax includes Kohl’s Department Stores, based in Wisconsin. A coalition supporting the plan includes companies such as GE and MillerCoors, which have a major Wisconsin presence.

Wisconsin Manufacturers & Commerce, the big statewide business lobby, has taken no explicit position yet on the issue, nor has Republican Gov. Scott Walker.

Meanwhile, President Trump has sent mixed signals about the idea, sounding supportive at times and unconvinced at other times.

In an interview with Maria Bartiromo on the Fox Business Network Wednesday, the president said he didn’t like the term “border adjustment.”

"I haven't really wanted to talk about it,” he said cryptically of the proposed tax. “I have my own feelings.”