One conservative group produced colorful flow charts warning millennials that a “border-adjustment” tax proposed by Speaker Paul D. Ryan would raise prices on “the Jose Cuervo tequila that’s in your happy-hour margarita”.
Three days later, a second conservative group kicked off a lobbying campaign saying it would amount to a $1.2-trillion tax on seniors and the working poor.
The next day, still another group weighed in, issuing a news release that highlighted how Latinos would be “among those hardest hit” by the new tax on imports.
All three organizations share a common lineage: They are part of the political network overseen by Charles D. and David H. Koch, the billionaire conservative businessmen. Now they are among a host of conservative organizations mounting a furious campaign against a new tax on imports proposed by House Republicans, imperiling what is supposed to be a centerpiece of the Republican tax-overhaul effort.
Their opposition threatens yet another rupture with President Donald J. Trump, some of whose advisers see the provision as a critical way to bring about tax reform while protecting US manufacturers.
The battle could not only jeopardize Trump’s second major legislative initiative, but also redefine the boundaries of conservative economic policy.
Much like the failed repeal of the Affordable Care Act (ACA), the import tax is dividing conservatives, the business sector and some of the deepest-pocketed groups funding conservative politics.
Along the way, it is exposing the broader ideological divide between nationalist policies embraced by Trump and the traditional small-government movement that his election ejected from the driver’s seat of Republican policy-making.
“Trump ran on a different set of economic issues than traditional conservative Republicans have,” said Stephen Moore, a fellow at the Heritage Foundation who favors the border tax on intellectual grounds, but said he had come to see it as a “poison pill” for broader tax reform.
“The baton has been passed on from Reagan to Trump,” Moore continued, “and there’s no doubt he ran on a much more populist economic message.”
The idea of a border-adjustment tax has percolated among academic economists and in think tanks since the 1970s, as the US has considered ways of harmonizing its tax code with countries that use value-added taxes.
Central to the plan is a provision that would tax imports at a rate of 20 percent while exempting exports from taxation.
In theory, this would buttress domestic manufacturing, make US products more competitive with foreign goods and encourage US companies to bring home cash they have been parking overseas.
“It is a simple and elegant way to get good tax compliance,” said Douglas Holtz-Eakin, a Republican economist and president of the right-leaning American Action Forum, a nonprofit tied to a “super PAC [political action committee]” that backs House Republicans.
Some conservatives oppose it for the same reason: In their view, such a tax would be too easy to increase, with the potential costs to Americans hidden behind rising prices.
Groups like Americans for Tax Reform—headed by Grover Norquist, perhaps Washington’s most famous antitax crusader—have praised the border-tax proposal, saying it would put US businesses “on a level playing field” with foreign competitors.
Retailers that import many of their goods are lobbying against the idea, while domestic manufacturers, like Boeing and Caterpillar—whose interests figure heavily in Trump’s economic thinking—are supporting it.
The Koch network and groups, like the Club for Growth, which for years have targeted what they call “crony capitalism” in Washington, have opposed the border tax as an unnecessary tax increase and a form of favoritism that would hurt the economy.
But Trump and his team have pledged to target what they see as a more insidious kind of cronyism, including unfettered free trade that some Trump advisers say benefits wealthy elites at the expense of US workers.
The dispute echoes Trump’s battles with his party last year, when the Club for Growth, a group of wealthy conservatives that backs antitax candidates in Republican primary races, financed a multimillion-dollar advertising campaign against him.
The Koch network, uncomfortable with Trump’s proposals on trade and immigration, sat out the presidential election entirely, turning its advertising dollars and activists to down-ballot races.
Both the Club for Growth and the Koch network also played a critical role in killing a proposal backed by Ryan and Trump to repeal and replace the ACA.
In March as the repeal vote approached, two Koch-aligned groups pledged to spend upward of $1 million on ads defending any Republican who voted against the replacement legislation.
Now, some of the same groups are organizing visits to lawmakers and paying for an online advertising campaign, attacking the border-tax proposal.
Image credits: AP/Bob Daugherty