Washington Insider-- Wednesday

Tax Fights Coming

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Lighthizer Nomination Vote April 6

The nomination vote of U.S. Trade Representative (USTR)-designate Robert Lighthizer will take place Thursday by the Senate Finance panel, despite lack of resolution to controversy over a waiver that some lawmakers believe he needs before he can be confirmed.

“In order to ensure congressional input on trade agreements that protect intellectual property rights, benefit American families and businesses and promote US global competitiveness, we must have a USTR in place," Finance Chairman Orrin Hatch, R-Utah, said in a statement. "Mr. Lighthizer’s nomination has been subject to unprecedented delay and unrelated demands for far too long."

The panel held a confirmation hearing for Lighthizer on March 14, but progress has stalled as some Finance Committee Democrats, who are generally supportive of Lighthizer, argue that a waiver requiring bicameral approval is necessary under the Trade Act of 1974 because of Lighthizer's past work as a trade attorney representing foreign governments. The Trump administration put forward a previously drafted legal opinion that argues the waiver requirement is unconstitutional.

Democrats are also demanding the waiver be used as a vehicle to renew a benefits program for miners that sunsets when a short-term spending measure expires later this month.

"It is my hope my Democratic colleagues remove their unrelated demands and work with us to advance his nomination through the committee for full Senate consideration," Hatch said.


Mexico, Canada Urge Trilateral NAFTA Renegotiation Talks

Work between Mexican and Canadian trade representatives continues as they seek to ensure that any trade discussions with the US over renegotiating the North American Free Trade Agreement (NAFTA) will be trilateral, even as the U.S. hedges on whether it will back a bilateral approach.

The private sector in both Mexico and Canada have been much more active in building a joint front interested in a continued trilateral approach to trade, according to Moises Kalach, who leads the international negotiation team for Mexico's Business Advisory Council. "We have very close ties with the Canadian private sector and we have been very clear that we are building a strategy together on NAFTA and we will continue to do so,” Kalach told Bloomberg BNA in an exclusive interview.

“We have heard very good news from Canada — they have a long-term view on Mexico and they like investing in Mexico. They think Mexico has made the right decisions in its recent reforms.” Members of the Mexican and Canadian business sector met in Monterrey, Mexico, and plan to have another meeting in the summer to further plan a joint strategy.

The U.S. Trade Representative's (USTR) office released a draft notice of its trade objectives for renegotiation of NAFTA on March 30. The notice indicated ambivalence over whether USTR is planning to include both Canada and Mexico, noting that “it is premature to say what final form the negotiated outcome will take.”

Washington Insider: Tax Fights Coming

Bloomberg is edging toward a pretty specific tax policy prediction this week in spite of the intensity of the fight. The agency says that while “the President’s surprising election and his promise to overhaul the US tax code set off celebrations, some industries had barely applauded before they began gearing up for a fight.”

It turns out that Trump’s win quickly drew attention to a radical tax code rewrite that House Speaker Paul Ryan, R-Wis., unveiled last summer with little fanfare. It would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports while exports would be exempt.

This concept triggered “alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc,” Bloomberg says. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the tax change. Buttressed by more than 10,000 phone calls to congressional offices, by a parody-style TV ad that aired during “Saturday Night Live” and by a succession of Republicans who’ve expressed concern about the plan, the opponents’ efforts appear to be winning, Bloomberg says.

However, the action now is shifting to the White House, which means a cloudier picture; lobbyists on both sides say since they are not sure who’ll determine its final content... And, it’s still early so “unless we know where the White House is going to come down on it, it’s hard to say who is winning.”

Ryan and Representative Kevin Brady, R-Texas, who chairs the House Ways and Means Committee, have championed the plan as a way to raise revenue that would help finance tax cuts. Independent estimates claim it would raise more than $1 trillion in tax revenue over 10 years and help American-made products compete more effectively in overseas markets--but could run into opposition from the WTO.

Those who oppose the border-adjusted tax say it would lead to higher prices on a range of consumer goods – even if a strengthening dollar could help offset such effects out. Opponents have gained valuable allies in Trump’s administration including Treasury Secretary Steven Mnuchin and Gary Cohn, Trump’s top economic adviser.

Meanwhile, Stephen Bannon, the president’s chief strategist who favors an “economic nationalist” approach, is said to favor the proposal.

Trump himself hasn’t weighed in yet -- and that lack of clarity has left the plan from Ryan without much political cover and open to attack, said Americans for Affordable Products which now has more than 400 member companies. A flood of CEOs including J.C. Penney haven’t been shy about lambasting the border-adjustment proposal. Wall Street analysts have chimed in; the concept “would be a really big hit to some companies,” said Scot Ciccarelli of RBC Capital Markets.

Opposition to border adjustments also came from Americans for Prosperity, the conservative advocacy group founded by billionaire brothers Charles and David Koch. AFP says it has placed more than 10,000 telephone calls to members of Congress and made more than 100 visits to district offices in the past six weeks.

The supporters say border adjustments would reduce incentives for US companies to move jobs overseas, and they are planning to launch new ads this month as Congress takes a two-week spring recess.

Amid the corporate divisions on the issue, Washington’s usual business lobbying has been thrown into disarray. Powerhouses like the US Chamber of Commerce, the American Petroleum Institute and National Association of Manufacturers have been neutral because their memberships are split on the issue. Same for the Business Roundtable, Bloomberg says.

“Regardless of how that issue comes out, you will see the Business Roundtable coming in strongly to help pull reform across the finish line,” JPMorgan Chase & Co. CEO Jamie Dimon, who chairs the group, told Bloomberg last month.

Wall Street has also mostly stayed quiet on border adjustments because it’s not clear how businesses such as trading and lending would be treated under the GOP plan. Financial industry lobbyists see the proposal as a non-starter in the Senate because of the opposition generated there by the retailers and their allies.

“It has proved to be a very controversial issue, particularly on the Senate side where it doesn’t look like there is going to be enough support for it,” said Mike Sommers, the president of American Investment Council, which represents private equity firms. And, all bets are off, observers say, if the House plan is defeated and Congress begins looking for other ways to help finance tax cuts -- which might draw any number of other companies into the fray.

So, the Ryan tax plan almost certainly will be at least as controversial as the Ryan health plan, especially the part that implies increases in costs for some firms and for consumers in return for reductions in corporate taxes. Given the lineup of big political names in opposition to the Ryan approach, Bloomberg’s negative view seems at least modestly likely—which means new, more contentious fights over many things, including possibly the main safety net entitlements, Washington Insider believes.

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