On May 18, 2017, the House Ways and Means Committee, which writes the nation’s tax laws, hosted its first hearing of the year on tax reform. The Committee gathered a group of business leaders to testify on the best course of action to revamp the tax code and grow the economy. Of particular importance is the hearing on May 23 entitled “Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas.” This hearing focused on the border-adjustment tax (BAT), which formed a key part of Republican comprehensive tax reform efforts announced in June 2016. According to the plan, the BAT proposal would tax imports and exempt exports, providing a source of revenue so lawmakers could cut taxes in other segments of the economy.

Ways & Means Committee Chairman Kevin Brady (R-TX) opened the hearing by calling the current tax system the most unfair in the world and vigorously advocating for the BAT. Chairman Brady noted that the United States is one of a few major economies in the world that do not apply BAT measures. The BAT, however, is uniformly opposed by Democrats and has drawn concerns from some Republicans on the Ways and Means Committee, while others wanted more information on how the measure will affect their constituents.

Hearing witnesses from academia and industry expressed a variety of opinions in support and against BAT. For example, Reed College Professor Kimberly A. Clausing highlighted potential trade retaliation from an adverse World Trade Organization (WTO) ruling against any BAT measure and the “large negative shocks to import-intensive industries.” In contrast, Lawrence Lindsay, director of the National Economic Council under President George W. Bush and President and CEO of The Lindsey Group, defended the measure by highlighting the disconnect between potential WTO retaliation and use of BAT measures by other WTO members.

We will continue to monitor BAT as potential tax reform measures move ahead this summer.