Speaking out: Art Pope addresses the proposed border adjustment tax plan

Video courtesy of Carolina Journal

Article courtesy of North State Journal

By Donna King | April 12, 2017

RALEIGH — In a press conference Tuesday, the N.C. Retail Merchants Association warned of high prices for consumers and job loss across the state if a border adjustment tax passes as part of the national conversation on tax reform.

The border adjustment tax, or BAT, is billed as a way to boost U.S. manufacturing by exempting export revenues from federal tax. However it would also end the deductibility of import costs by corporations and retailers, making imports for production or resale costlier. Retailers say it’s fundamentally unfair to retailers over large corporations that primarily export, and would amount to a 20 percent increase on consumer goods. The cost is estimated to be $1,700 per family per year.

“It would tax virtually everything that N.C. families buy: groceries, prescriptions, gas, home goods, shoes, clothing — you name it,” said Andy Ellen, president of the N.C. Retail Merchants Association. “It would slap a giant 20 percent increase on any of those items that are imported. Every morning I drink a cup of coffee and eat a banana. My children eat strawberries year-round. Those products don’t grow here and last time I checked we can’t move the equator.”

The BAT is part of a tax reform blueprint supported by U.S. House Speaker Paul Ryan. President Donald Trump is also working on a tax plan. The quest to revamp the tax code moved to the top of Trump’s legislative agenda after a Republican push to repeal and replace President Barack Obama’s signature health care law, the Affordable Care Act, failed in the U.S. House.

To tackle the biggest overhaul of the U.S. tax code since the Reagan era quickly, House Republicans are hoping to avoid the political fault lines in the party, so opposition among conservatives is raising a red flag in Congress.

“The total value of imports coming into N.C. was around $52.8 billion. That is equivalent to 11.1 percent of N.C.’s GDP,” said Donald Bryson, executive director of N.C.’s Americas for Prosperity. “A 20 percent BAT would lead to $10.57 billion in new taxes on N.C.’s economy, and on our citizens and businesses. To put that in perspective, in 2014 the state only paid $8.69 billion in federal income taxes. … That’s a significant burden.”

Art Pope, who served as a legislator and the N.C. State budget director under former Gov. Pat McCrory, is a force in GOP politics and said he has been in touch with N.C.’s representation in the Washington to oppose a BAT. He said it unfairly targets retailers, especially small ones, over other companies that are capital intensive and can still deduct capital goods like equipment and buildings.

“It’s not right, it’s not fair, it’s not tax neutral to let one group deduct all their expenses including capital expenses while retailers cannot even deduct their costs of goods sold,” said Pope.

Pope said some of the state’s delegation have decided to oppose it but others say it’s still on the table. The House Republicans hope to vote on a tax reform bill before they leave for summer recess at the end of July. Congressman Mark Meadows (R-N.C.), who leads the Freedom Caucus in Congress and was credited with coordinating opposition to the recent health care reform effort, said the tax reform debate boils down to a decision between the BAT plan, backed by Ryan and deficit-funded reforms. He did not take a position on Thursday but recently said his group could support reforms that are not revenue neutral.

“We can get it done before August as long as we are real serious about having real debate. … Debate has to be about changing policy,” said Meadows. “We need to go ahead and start having those discussions today. Let’s look at legislative text.”

Two conservative groups, Freedom Partners and Americans for Prosperity, issued results of a survey this week that ranked N.C. as the No. 22 state that could potentially be the most harmed by a BAT, primarily because the retail industry in N.C. is the largest private employment sector with one out of every four jobs tied to retail.

The study was sharply criticized by House Ways and Means Committee Chairman Kevin Brady, a Texas Republican who intends to include the BAT in tax reform legislation.

“That so-called study will be easily discredited and probably fits the definition of fake news,” Brady told reporters. “It takes one provision, pretends the economy freezes … applies it in our current tax code and comes up with fantasy figures.”

Proponents of the BAT refer to a macro-economic theory that says the U.S. dollar will appreciate in value by 25 percent to make up the cost. Pope disagrees.

“I live in the real world,” said Pope. “I have to negotiate with individual vendors on individual products ranging from pants, socks, handkerchiefs, each individual item. To imagine that the U.S. dollar is going to appreciate 25 percent overnight to offset that increase tax is not realistic.”

Tax reform negotiations are currently underway with hearings anticipated for the summer and action on a measure in August.

“We know it takes 500 messages to fill up the voicemail box of a U.S. senator,” said Bryson. “We filled up 24 last week and we are going to do another 24 this week and another 24 next week.”