Thursday, March 23, 2017

Rep. Tom Rice (R-SC7) Wants the BAT Which Will Harm His District

Tom Rice of South Carolina's Seventh District is a team player.  He toed the party line for Ways and Means Chairman Kevin Brady (at least on tax reform). In the March 7th #TaxReformTuesday, Rice extolled the party line:



As previously noted, Ways and Means members have reportedly been threatened with losing their seats on this critical committee if they don't pledge to support the terrible BAT.  Rice is a conservative who has supported trade initiatives in the past:  “South Carolina is experiencing a resurgence in manufacturing,” Rice continued. “Our manufacturers need access to the 96 percent of the world’s consumers that live outside of the United States.  Without trade agreements, our manufacturers face substantial barriers selling to consumers in other countries.

That's rich coming from Rice.

As Rice well knows, the Border Adjustment Tax will toast some of the most important employers in his district.  He has supported many of these manufacturers in the past.  Those manufacturers do a lot of importing.  The biggest importer in the Seventh District of South Carolina is Honda. Here is a quote provided by Rice himself:  


"'As our Timmonsville-based facility is the sole global production source for Honda all-terrain (ATV) and side-by-side (SxS) vehicles, Honda of South Carolina Mfg., Inc. understands the benefits of rules-based trade and open investment for increasing market-opening opportunities for our U.S.-origin products,' said Brian Newman, President of Honda of South Carolina Mfg., Inc. 'Therefore, we call upon Congress to pass TPA-2015 in order to strengthen the trade deals that the U.S. negotiates to better benefit American workers, American communities, and companies that manufacture in, and export from, the United States.' and companies that manufacture in, and export from, the United States."


Other large importers in Rice's district include Otis Elevator.  Here is Rice appearing at the Otis plant:


Tour of Otis Elevator Company

Chummy.  I bet they're glad he's their Congressman.  Here is Otis bragging about the honor of hosting Rice:


Otis was induced to build in his district, like Honda, and now they're screwed . . . by their own representative.  Their employees should take revenge at the polls. Other large importers in Rice's district are in auto parts, containers, packaging, molding, plumbing, boat manufacturing, clothing distribution and wire.  A nice spectrum of the economy, all about to get a whopping tax bill at the behest of their Congressman.

Please note that many of these companies sought to manufacture here as a way to gain entry to the U.S. market. Like many manufacturers, they import certain components, as one does in a global supply chain, as part of manufacturing finished goods which are often destined for the U.S. market.  In other words, no export tax relief for such a company.

Should Tom Rice care about these constituents?  Well, he could lose his seat on Ways and Means if he did.  Probably better for him to look after Number One.

As in prior importer profiles, my importer data comes from a public database and represents a two-year period (2015/16).  In Rice's district, there were 619 importers with a total of 16,555 entries in that period of time.  The top 76 of the importers, listed in alpha order below, accounted for 14,864 such entries. That's 29 per day for two years solid, 7,400 per year for only 76 companies.  Those companies employ many thousands of South Carolinians.  At least, they do at the moment.  In a small district (668,000 people), these are consequential numbers.

Tom Rice's planned BAT victims:


3V INCORPORATED GEORGETOWN SC
3V SIGMA GEORGETOWN SC
3V SIGMA USA INC GEORGETOWN SC
AGRU AMERICA INC GEORGETOWN SC
ATLAS IMPORTERS INC MARION SC
AVM INDUSTRIES MARION SC
BENETEAU USA INC MARION SC
BETHUNE NONWOVENS INC BETHUNE SC
CAROLINA PRODUCT SOLUTIONS FLORENCE SC
CONBRACO INDUSTRIES INC PAGELAND SC
DAVID C POOLE INC JOHNSONVILLE SC
DAVINE INT L INC MYRTLE BEACH SC
DEVON OFFICE FURNITURE CHESTERFIELD SC
DUNAWAY YARNS INC FLORENCE SC
E.I.DU PONT DE NEMOURS AND COMPANY MC BEE SC
EI DUPONT DE NEMOURS & CO MC BEE SC
ESAB WELDING AND CUTTING PRODUCTS FLORENCE SC
GENERAL ELECTRIC HEALTHCARE FLORENCE SC
GILDAN HMR HAMER SC DC 09 HAMER SC
GILDAN USA SOUTH CAROLINA DISTR CENTER HAMER SC
GLENDINNING CONWAY SC
GLENDINNING MARINE PRODUCTS INC CONWAY SC
GREENE LE COPR PAWLEYS ISLAND SC
HELIOS GRANITE MYRTLE BEACH SC
HILEX POLY CO LLC HARTSVILLE SC
HONDA TRADING AMERICA CORP TIMMONSVILLE SC
INTERNATIONAL ASSOCIATES HARTSVILLE SC
INTERNATIONAL KNIFE AND SAW FLORENCE SC
JAYS AIR FASTENERS INC LITTLE RIVER SC
JBE INCORPERATED HARTSVILLE SC
JERRY HUBER ASSOCIATES INC PAWLEYS ISLAND SC
JOHNSON CONTROLS BATTERY GROUP FLORENCE SC
KLAUSNER TRADING USA INC MYRTLE BEACH SC
MAGNET PLANT GEMS MAGNET PLANT FLORENCE SC
MANN HUMMEL FILTRATION TECHNOLOGY DILLON SC
MAR MAC WIRE INC MC BEE SC
MARLEY ENGINEERED PRODUCTS  BENNETTSVILLE SC
MARMAC PROTECTIVE APPAREL COMP TIMMONSVILLE SC
MC JAKE LLC 426 MURRELLS INLET SC
METGLAS INC CONWAY SC
MID ATLANTIC STONE MYRTLE BEACH SC
MITCO MANUFACTURING ANDREWS SC
MOREE IND IVERSIDE PUMP CHERAW SC
MULTITECH INDUSTRIES INC MULLINS SC
NAN YA PLASTIC CORPORATION LAKE CITY SC
OTIS ELEVATOR NA MFG FLORENCE SC
PACKAGING SOLUTION INC JOHNSONVILLE SC
PHI HOLDING COMPANY LLC GEORGETOWN SC
PLASTICS PROVIDER INC CONWAY SC
QVC INC FLORENCE SC
RBC BEARINGS HARTSVILLE SC
REGAL CUTTING TOOLS INC LORIS SC
ROCHE CAROLINA INC FLORENCE SC
SAE CONWAY SC
SCHACHE07LOGIN NEHMEN CHERAW SC
SCHAEFFLER GROUP USA INC CHERAW SC
SCREEN TIGHT GEORGETOWN SC
SIRUTHERSDUNN TIMMONSVILLE SC
SONOCO PRODUCTS COMPANY INC HARTSVILLE SC
SOPAKCO PACKAGING DISTRIBUTION BENNETTSVILLE SC
SOUMINEN NONWOVENS BETHUNE SC
SOUTH STAR GRANITE MYRTLE BEACH SC
STANLEY TOOLS CHERAW CHERAW SC
STRAND IMPORT AND DISTRIBUTORS INC MYRTLE BEACH SC
SURE TRAC INC LORIS SC
TEXTILE FIBER INTERNATIONAL LAKE CITY SC
TUPPERWARE US INC HEMINGWAY SC
US BLADES FLORENCE SC
VESUVIUS USA DILLON SC
WELLMAN PLASTICS RECYCLING LLC JOHNSONVILLE SC
WHISPERING PINES SPORTSWEAR INC PAGELAND SC
WHOLESALE BOUTIQUE LLC MURRELLS INLET SC
WINLAR MANAGEMENT BENNETTSVILLE SC
WOLVERINE BRASS INC CONWAY SC
WORTHINGTON IND ENGINEERED CABS FLORENCE SC

New York Times Highlights Advertising War over Border Adjustment Tax

Today's New York Times puts a spotlight on the energetic effort to persuade 435 Americans to stay away from the Border Adjustment Tax, and secondarily, persuade you the public.   The article shows one pro-BAT commercial that continues to propagate the urban myth that jobs are leaving the country because of taxes.  The article, however, also highlights three anti-BAT commercials, two of which you may have already seen.  Here's the Internet-only one:



I think it's so interesting how issues like the BAT are further eroding the Republican brand and splitting the base. Forcing the business community to break into opposing camps and fight each other isn't helping Republicans get their work done. The Republicans did this to themselves, and find themselves on a sinking ship of their own construction.

You need only look at the challenge of repealing and replacing Obamacare for the lesson of Republican lack of vision. Paul Ryan pulled the plug on a vote for today, and is talking about a vote tomorrow. We'll see if he pulls a rabbit out of the hat (don't hold your breath). Big confidence builder. The failure to move the TrumpCare bill is more than a failure to keep a promise.  It is also a huge failure of Trump as "dealmaker" and Ryan as party and House leader. It does not bode well for them crafting majorities for legislation to follow.  Good for us.  Gridlock looks better and better.

Please understand that this reflects a choice made by the Republicans. their deal with the devil. They basically burned their bridges behind them, and decided to govern without making any effort, ANY effort, to gain Democratic support for anything.  Perhaps Trump's strategy of calling Chuck Schumer "head clown" wasn't so smart.  So the Republicans must now go it alone, and that has consequences.  If you can't hold your team together, you get nothing done.

And they seem to have a dysfunctional coalition in the House. Trump and Ryan have yet to find a way to unify conservative and moderate Republicans even on Obamacare, their key issue.  For every conservative vote they gain, they lose a moderate. With a President sinking in popularity (such as it is for someone with approval ratings under 40% after just two months on the job) and uninspiring leadership in the House, House Republicans have little incentive to line up behind . . . anyone.  And the Democrats are further encouraged to become extreme and ultra-uncooperative. See the promise to filibuster Neil Gorsuch as Supreme Court nominee.

For those of us at risk of extinction under the Brady Plan, nothing could be more delightful than Republican disarray.  As I have explained before, tax reform must come after healthcare reform because the Republicans must now take all action by reconciliation.  Given the sharp political risks to Republicans who line up behind Trump or Ryan, tax reform hangs in the balance.  We will continue to stoke the fire until it's too hot to handle.

We will do what we must to stay alive.

Tuesday, March 21, 2017

A History Lesson on Protectionism

The Border Adjustment Tax purports to be "simply" tax policy and certainly not "trade policy". However, it is readily apparent that the BAT is trade policy, and is protectionist in nature.  What me worry? 

NPR's Planet Money published a short cautionary tale about protectionism which is worth a moment to read.  In this report, they noted that Argentina went through a populist revolution about ten years ago and elected a charismatic president who wanted manufacturing to return home. No, they didn't elect Trump, they elected Cristina Kirchner. You know, the one who was later indicted for corruption.  

NPR starts by setting the scene:

"Ten years ago, Argentina was in a situation that may sound a bit familiar. The country had just elected a populist president, Cristina Kirchner, with big plans for their economy. Kirchner wanted to control imports and exports and bring manufacturing to Argentina, so she placed huge tariffs on items made overseas. For some products, she said, if you want to sell this in Argentina, you'll have to make it in Argentina. One of those items was the cell phone."

Sound familiar?

They go on:  "Cristina Kirchner's made-in-Argentina rule drove some companies away. Apple stopped selling iPhones in Argentina, but other companies played ball, including the company that made Blackberry phones."

The story doesn't end well.

Did you need me to tell you that?

Read the report and think about a U.S. economy with a border adjustment corporate tax.  

And get the antacid ready.


As the World Turns . . . TrumpCare Turns Into Border Adjustment Tax?

Will Trump and Ryan jam the new TrumpCare healthcare reform through the House?  The bill leaves a lot to be desired but because the Republicans deem it impossible to gain even ONE vote from Democrats, the healthcare law is critical to everything, literally everything, they want to do.  Without the savings from the repeal of Obamacare, ultimately, they cannot proceed on tax reform.

So, even if the law leaves a lot to be desired, regardless of your political stripe, the Republicans know that without it, they are stalled and stuck in the mud. This creates tremendous pressure to vote "yes" and hold your nose.

Of course, regardless of "inevitability", that does not save the Republicans.  The healthcare bill disenfranchises 24 million Americans from health insurance, notably many older and lower income people, and provided a big tax windfall for higher income people.  Not very good optics. And the bill is woefully incomplete and makes a poor case for better economics.  There is a reason for this.  The healthcare bill must fit within the constraints of a reconciliation vote.  Thus, many market-friendly and patient-friendly terms cannot be included in the bill without risking a Senate filibuster.  That is, if no Democratic votes can be obtained.  So this is all they can get right now.

So the delicious dilemma of the rank-and-file Republicans is which vote is more likely to be survivable - "yes" or "no"?  "Yes" means they are voting to take health insurance away from millions. "No" means they have failed to repeal Obamacare after eight years of complaints and promises.  Perhaps more importantly, IMHO, "no" means that the specious campaign promises of lower costs and better coverage could not be achieved.

And then there's the risk of appearing too cozy with Trump.  His disapproval ratings right now are epic and historic.  The path to greater political unity and popularity seems uncertain, to put it charitably. He's one tweet away from no credibility at all.  Supporting him could be very toxic at the midterm polls. Will Trump's base come out in the midterms and exact revenge on folks that oppose him? This is the question that Republicans must ask themselves as they figure out which line to cross. Normally, midterms do not favor the party in power.

Without healthcare reform passed into law, tax reform is likely dead for now.  If that happens, the Republicans will have squandered an opportunity that may never reappear.  The pressure will be enormous to vote yes to preserve the larger gains.

All of this makes the next few days are critical to the BAT war.  If the healthcare bill crashes in the House, the BAT probability goes down, and Ryan's standing also declines.  If healthcare gets out of the House, then Ryan's (and Brady's) star rises and BAT continues to breathe.  The political logic that may propel a bad healthcare law forward could possibly work the same magic on the BAT.  I think the two are different issues, and the political environment will likely degrade long before any tax legislation moves forward in the House.  Each of these votes is a campaign-in-a-can, and I am sure the Democrats are rubbing their hands in glee.

Kevin Brady is continuing to bang the drum for his Border Adjustment Tax.  After all, he sold his soul to get his job at Ways nad Means, and the price was the BAT.  He intoned on CNBC today: "My sense is that border adjustability has become a given. That it will be part of the final tax reform plan and now the discussions are how can it be designed in transition in a very positive way for importers,"   Brady and Ryan continue to own the airwaves and as such, remain a very potent force on this subject, notwithstanding the poor policy they advocate.  They are determined to so a Smoot-Hawley on us.

Watch the news closely in the next few days.  The progress of healthcare may tell the tale of the BAT, or at least give hints at the ability of Ryan and Brady to pull it through a vote.

Sunday, March 19, 2017

Border Adjustment Tax News Clips (3-19-17)

More clips!  As in the past,  you may find some clips require a subscription and that you may be able to get in to some articles via Google searches under the article title.





The SpectrumBordering on bad  3-16-17

VarietyWhat Does GOP’s Proposed ‘Border Adjustment Tax’ Mean for Filming Abroad?  3-16-17 [Movie Industry had a $17.8 billion trade surplus in 2015.  Ca-ching!!]






NPR Marketplace:  Is a border adjustment tax illegal?  3-15-17

The Fiscal Times:  Texas Has a Lot to Lose From a Border Tax  3-15-1-7




The Oregon Prosperity Project:  Economic Implications of a U.S. Border Adjustment Tax  3-15-17




OilPrice.com:  The U.S. Border Tax Would Hit Texas Hard  3-14-17




Farm Forum:  Border Adjustment Tax is poor policy  3-14-17




Palisades Hudson:  Adjusting Taxes Away From The Border  3-13-17





The National Interest:  The Folly of Paul Ryan's Border-Adjustment Tax  3-12-17


Indianapolis Business Journal:  Bury the idea of a border adjustment tax  3-11-17




Oracle CEO Refuses to Answer Question about Inflationary Firestorm Caused by BAT

You may recall that The Alliance for Competitive Taxation, a coalition of mega-corporations, bravely stood up to push the BAT on Congress.  These hyper-profitable objects of sympathy are all members of the Fortune 500 and stand to reap massive tax savings at everyone else's expense, notably Small Business Importers.  That is, if we let them.

Among the ACT worthies is Oracle Corporation.  This high margin multi-billion dollar software company gets a lot of revenue from overseas markets, and would save scandalous amounts of Federal tax if the BAT ever becomes law.

I think the idea is that we should all chip in so Oracle can live here for free.  They deserve it! Oh, how they have suffered.

So when CNBC asked Mark Hurd, CEO of Oracle, about inflation raining down on U.S. consumers as a result of his precious Border Adjustment Tax, well, watch for yourself.



So brave!!

The Reality on the Ground

I just returned from two days on The Hill and can report that the Border Adjustment Tax is not dead. The body is still twitching.

I had meetings with four House offices and one Senate office, and appeared on a panel before a group of moderate Republicans.  We got to present to the moderates before the pro-BAT group, which annoyed some of the staffers.  That tells you a lot.

Some Members remain strong in support of the BAT for reasons that have nothing to do with public policy or their constituents.  Some of them lierally live with leadership.  Congressmen often bunk together to save money, like dorm mates.  Kevin Brady has four or five roommates.  I have encountered two of them.  On this trip, the Deputy COS of one of them told me that they had heard from many people about the BAT and the issues related to the BAT, but her boss was "best friends" with Brady, lived with him and thought he "deserved a chance" to set his tax agenda.  No matter the consequences, apparently.

Other members crave being close to leadership and will do what they must to stay there.  Being on Ways and Means brings in significantly more campaign contributions, making it easy to outspend your opponent in any given year.  So your seat becomes very safe if you play along with leadership.

And finally, there are the threats.  It is my understanding from several sources that Republicans on the Ways and Means Committee have been told in no uncertain terms that they must vote for the BAT or they will get tossed off the committee.  See above for why this threat would be highly motivating.  This is THE committee to be on in the House.  In other words, Members on Ways and Means are going to vote for this bill whether or not they have "concerns" (constituents who will go bust), unless they are planning to leave Congress.

Politics is a dirty business.  This is part of the dirt of Washington.  Despite the fixed game and the lonely battle to overturn this tax proposal, we are not without our weapons.  We have a lot of support and the media has been on our side.  There is no question that the problems with the BAT are known and clearly set out for all to see.  Congressmen cannot claim ignorance.

The Senate remains a firebreak even if Trump comes out in favor of the BAT, which is not certain by any stretch.  Senate hostility to the BAT is open and strong, and there seems to be no way for the "Brady Plan"  to get through that body.  Under these circumstances, it is hard to believe Brady and Ryan will demand a vote on the BAT.  Barron's cover story this weekend ("Kill the Border Tax Before It Kills Us") made the observation that the BAT is a tax increase, hiding among tax reductions. Making members vote to increase taxes is a dangerous "ask", especially if it is clear that the bill has no chance in the Senate.  [This same argument is starting to pop up re healthcare.] It's a campaign-in-a-can for the Democrats.

And finally, there is the maelstrom Congress already faces:  healthcare legislation, a Russian investigation, unfounded allegations of wiretapping, and a budget battle.  And there is also a looming debt limit crisis.  Trump and Ryan will have to spend a lot of political capital to get through all of this And nothing stops time from ebbing away, marching toward dangerous midterm elections.  Tax reform is not likely to become law in 2017.  That's a long time and lots can happen.

It's a war, and will remain a war until Ryan and Brady officially withdraw the proposal.  That's not around the corner.  Keep fighting!