Koch Advocacy Group Hits Speaker Ryan’s ‘Buy American’ Tax Plan

The pro-jobs tax plan being developed by establishment Republicans, including House Speaker Paul Ryan, is now being opposed by the Koch brothers’ advocacy group, Americans For Prosperity.

The opposition of the Koch-funded group shows a widening clash between the GOP’s donors and Donald Trump’s expanding populist “Buy American, Hire American” coalition.

So far, the two groups have clashed over cheap-labor immigration and Trump’s successful candidacy. That clash was garishly demonstrated late December, when Trump publicly booted a friend of David Koch off one of his golf courses, prompting Koch to also leave. 

Brothers Charles and David Koch opposed Trump during the Republican primary season and refused to help him against Hillary Clinton, partly because Trump and many of his voters oppose unrestricted trade and mass immigration. Koch Industries is the second-largest private company in the United States: Forbes placed its 2015 revenue at $115 billion, and the brothers spend much money to fund the AFP’s network of small-government political advocacy.

The Koch opposition to the new tax plan appeared Jan. 27 in a letter from AFP’s “chief government affairs officer,” Brent Gardner. He argues that the plan would lead to “a whopping tax hike of more than $1 trillion on American families and small businesses over 10 years.”

Supporters of the draft tax plan say it would prod companies to hire Americans and buy American products by first slashing the ordinary corporate tax and but then imposing a 20 percent “border adjustment” tax on imported goods and components. Companies would avoid the “border adjustment” tax by hiring Americans, or buying U.S.-built robots or buying U.S-manufactured parts.

But the plan would also nudge up prices of foreign goods and products now sold at mainstream stories, such as WalMart. That’s the button being mashed by opponent of the tax, who say Trump’s middle-class and working-class voters would protest at the price hike.

“This is bad politics — if the left is smart, they can easily label this a ‘poor tax,’ a tax on WalMart shoppers to pay for a tax break for wealthy corporations,” said one free-market advocate.

House Republicans who are going along with this plan, tempting as it might be, are setting themselves up for disaster as soon as working Americans realize they elected Republicans [in 2016] … and the first thing they’re going to get is a 20 percent tax on anything produced outside their borders … Politically, this is a loser … probably the biggest big tax hike since the Clintons were in the White house, which would be a difficult first step for a Trump administration.

According to an analysis by Breitbart:

Trump’s trade economist Peter Navarro supports the concept of a “border adjustment tax” to boost U.S. domestic manufacturing by taxing imports to offset America’s sky-high 35 percent U.S. corporate tax rate …

The border adjustment measure is the linchpin of Ryan’s “Better Way” tax reform blueprint, which was discussed with Trump’s transition team during a January 16 meeting on Capitol Hill…

Speaker Ryan proposes to eliminate the corporate income tax and replace it with a “destination-based cash-flow tax” (DBCFT) to make the U.S. an attractive location for international investor. The DBCFT is basically value-added tax (VAT), like every other advanced nation currently employs. But the big difference in the “Better Way” is that U.S. companies still be able to deduct the cost of labor costs, like the current corporate tax.

U.S. companies are subject to a maximum 35 percent worldwide corporate income tax rate. That compares to a top corporate tax rate of 18.6 percent in Europe and a 15 percent in China, which serves as a strong incentive for companies to locate production outside if the U.S.

Economists Alan Auerbach and Douglas Holtz-Eakin are both advocates of border adjustments. They argued in a recent paper that “unlike tariffs on imports or subsidies for exports, border adjustments are not trade policy. Instead, they are paired and equal adjustments that create a level tax playing field for domestic and overseas competition.”

But the tax plan would complicate business for companies that now import foreign machinery and parts, such as Asian-made pipelines or earth-moving machinery.

Koch Industries is a network of high-tech, machine-intensive companies that often pay good salaries. But it and many other companies could be hit by the tax when they’re importing foreign parts and components.

The AFP advocacy group claims to have 3.2 million grassroots members, and is formally independent of the Koch Industries. But its advocacy matches the corporation’s interest in low taxes, modest government and light regulation.

In December, for example, the company directly criticized the “border adjustment” proposal.

“While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long-term consequences to the economy and the American consumer could be devastating,” said a statement from Philip Ellender, the public affairs chief at Koch Companies Public Sector, LLC. He said: 

The proposed border tax adjustment will distort the market, increase consumer prices and create an uneven playing field for companies and consumers alike.

The tax plan is being prepared at the House Ways and Means Committee, chaired by Texas Rep. Kevin Brady. “The main goal of our tax reform blueprint is to grow our economy and help all Americans become more prosperous,” said a statement from Brady’s press aide.

“For too long, our broken tax code has put America at a disadvantage in the global economy. When combined with the other pro-growth reforms we are proposing, ending the “Made in America” tax will dramatically simplify our international tax system, level the playing field for “Made in America” products, and help our workers and businesses compete and win anywhere in the world,” said the statement.