Washington Insider -- Tuesday

Questions About Border Adjustment Tax

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

Pruitt to Address EPA Employees

After the Senate confirmation of Oklahoma Attorney General Scott Pruitt to become President Trump's administrator of the Environmental Protection Agency, Pruitt will address agency employees Tuesday.

The Senate confirmed Pruitt 52-46. The vote was held amid an intensified campaign by Democratic lawmakers to stall the vote.

Majority Leader Mitch McConnell, R-Ky. said "enough is enough" to the Democratic opposition on the floor ahead of the vote. He said confirming Trump's Cabinet has taken the "longest" amount of time "since George Washington," which he said should not be seen as a record of pride for the minority party.

McConnell said the delaying tactics "won't change the outcome of the election last November," but instead are keeping the government from serving the American people.

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Supreme Court Gives Extra Time for Challenges on WOTUS Jurisdiction

More time will be allowed for the National Association of Manufacturers (NAM) to file its opening brief with the U.S. Supreme Court arguing why a federal district court is best suited to hear challenges to the Environmental Protection Agency's Waters of the US (WOTUS) rule.

NAM and others that back its position can file their brief by March 29, the nation's top court said Feb. 15, instead of the original date of Feb. 27. The government's response, which favors an appellate over a district court review, would typically be due a month later. Timothy Bishop, an attorney in Mayer Brown LLP's Chicago office who represents the manufacturers, told Bloomberg BNA he expects the government also will seek an extension to file its response until after Memorial Day.

Manufacturers sought an extension after the Supreme Court informed them oral arguments would not he held until the October session in this case, Bishop said. The Supreme Court agreed January 13 to hear a petition filed NAM. The group questioned the decision by the US Court of Appeals for the Sixth Circuit to establish itself as the venue to hear challenges to the currently stayed WOTUS rule, which seeks to clarify Clean Water Act (CWA) jurisdictions.

The government backed the Sixth Circuit's interpretation of the CWA provision, which NAM contends was an erroneous reading of the statute. A coalition of industry and business groups backs NAM's petition, led by the American Farm Bureau Federation (AFBF) and a coalition of states that includes Oklahoma.

No environmental group currently backs the government's position. They say they prefer to be involved when the courts decide on the rule itself, rather than a procedural matter of which court should review the rule.


Washington Insider: Questions About Border Adjustment Tax

Well, nobody said creating a new tax policy would be easy and now Bloomberg is reporting that "the GOP faces a tax plan dilemma."

It notes that heavy GOP hitters are pushing back against the House proposal, which could mean, Bloomberg says, that "House Republicans may need to rethink their border adjustment approach" to tax imports. Two leading senators have reported that they doubt the proposal could pass their chamber.

"I don't see that happening, not the way the House has configured it," Senate Finance Committee Chairman Orrin Hatch R., Utah, said last weekend. "I can't say there won't be something done in that area."

Nevertheless, the lack of Senate Republican support is being interpreted as indicating that the House plan will need to undergo significant changes in order to become law this year.

President Donald Trump, who is expected to release his own tax outline in the coming weeks, has said border adjustability is too complicated. "Retailers, oil refiners and other import-reliant businesses are lobbying heavily against it," Bloomberg says. It quotes Senate Majority Whip John Cornyn, R-Texas. "The House template has encountered quite a bit of skepticism on the border-adjustment issue, so I don't think it's going to be a viable part of the tax reform,"

Sens. Tom Cotton, R-Ark., and David Perdue R-Ga., have previously gone public with concerns about the House GOP border adjustment plan, as has Cornyn, and Hatch reiterated the "real concerns" he has with it. "We don't know exactly what it's going to look like at the end," he said.

House Ways and Means Chairman Kevin Brady, R-Texas, said he wants to address the concerns senators have about the plan, but also said he won't support a plan that doesn't include provisions to tax foreign products the same as American-made goods.

Republicans in the House and Senate are under pressure from business groups to push through a plan that lowers corporate rates this year, which is seen as a once-in-a-generation opportunity to overhaul the tax code. If Congress doesn't get legislation to Trump's desk in 2017, there will likely be an uptick in companies seeking foreign acquirers to move outside the U.S. tax net, Louise Weingrod, Johnson & Johnson Inc.'s vice president of global taxation, said.

"I think it's obvious that companies will not be able to sustain hope for another 30 years to get another window like the one that we have this year," she said Feb. 17 at a Tax Council Policy Institute event in Washington. "Because we have so much reason to hope, the stakes are very high if we fail. There is not an option not to get to the finish line on this."

Across the business world both support and opposition coalitions have formed, Bloomberg says. Johnson & Johnson is part of a group that applauds the plan, along with General Electric Co. and Boeing Co. However, the conservative Americans for Prosperity group launched a campaign Feb. 16 aimed at persuading House and Senate Republicans to oppose border adjustments.

House Speaker Paul Ryan, R-Wis., one of the main border adjustability cheerleaders in the House, is confident about Congress' ability to act this year. "More and more" U.S. companies are going to leave the country if the tax laws aren't changed, he said.

"We're going to get tax reform done," Ryan told reporters Feb. 16. "And there's going to be a whole bunch of drama you're going to enjoy covering between now and then."

In recent weeks, business community opposition to the border tax adjustment plan appears to have grown steadily, especially from companies who rely on imports for part of their supply chain. The House Speaker's support appears to reflect the attraction of a large stream of tax revenues that could offset lower corporate tax rates—but, the spotlight has recently shifted to both corporate and consumer impacts, making the tax debate both more complicated and uncertain and should be watched closely by producers as it proceeds, Washington Insider believes,


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