Maureen Groppe

IndyStar Washington Bureau

WASHINGTON – Changing the tax code so more products are made in the United States instead of in foreign countries — who could object to that?

Changing the tax code in a way that could raise the price of toys, gasoline and clothes — who could be for that?

Those are two ways of looking at a proposal central to House Republicans’ tax overhaul plan which has divided Indiana businesses.

GOP leaders say any tax reform bill needs to include a “border adjustment” tax, which critics call a new levy on imported goods that could drive up consumer prices and spark a trade war.

Under border adjustment, American companies would pay tax on the sale of imported products, but not on products they sell overseas. Today, an American company that sells a product overseas pays taxes to the United States on the sale, but most global competitors remove their domestic value-added taxes from products that are exported here. That puts American-made goods at a tax disadvantage both when sold in the United States and overseas, argues Rep. Kevin Brady, the Texas Republican who chairs the Ways and Means Committee.

Changing the rules, he argues, would spur more domestic manufacturing and remove an incentive for companies to relocate headquarters overseas. It also would be paired with a cut in the corporate tax rate from 35 percent to 20 percent.

But business are lining up on opposite sides.

Eli Lilly and Co. and Cook Medical are among the Indiana companies part of the American Made Coalition, export-heavy companies supporting the change.

“Because of old tax policies, our country has lost millions of American jobs,” says an ad the group began airing last month. “Stop favoring foreign-made imports over American-made goods.”

On the other side are businesses heavily reliant on imports, including motor vehicle parts suppliers and members of the Indiana Retail Council.

“We live in a global economy,” Grant Monahan, president of the Indiana Retail Council, said in a call with reporters Wednesday organized by Americans for Affordable Products. “Congress needs to accept that and move along with genuine tax reform.”

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Both sides are touting reports they say make their case.

A report funded by Americans for Prosperity and Freedom Partners ranks Indiana as the 16th most sensitive state to a border adjustment tax, with imports representing about 15 percent of the state’s economy. The report also says more than one in ten Hoosier jobs in private employment are in retail.

“It’s going to increase prices for retail merchandise across the state of Indiana,” Monahan said of the Border Adjustment Tax.

Backers of the tax say opponents are isolating the effect of just one part of the tax plan. When all the components are analyzed, the plan would create jobs and increase household incomes, according to a report from the Tax Foundation. The report says the plan could boost median household income in Indiana by $4,523 because of income tax cuts, and an increase in productivity and wages spurred by new economic growth.

Both sides are stepping up their public relations campaigns while Congress is taking a two-week break from legislating to conduct meetings in their districts.

Tax reform is one of the top legislative priorities for congressional Republicans and President Donald Trump.

But an overhaul of the tax code — which hasn’t been done in decades — hit a major roadblock after Republicans failed to agree on a way to repeal and replace Obamacare. Republicans had counted on using the savings from reducing government spending on health care to pay for some of their proposed tax cuts.

Trump said in a Fox News interview which aired Wednesday that he still wants to pass a health care bill first. But prospects of that happening remain uncertain. And Trump hasn’t been clear about whether he will fight for a border adjustment tax.

“I haven’t really wanted to talk about it,” he told Fox News.

Trump also suggested that the controversy over the tax could go away if it was renamed a “reciprocal” tax.

“When you say reciprocal, nobody fights you,” Trump said. “I’m not saying that’s what I’m doing, but there has to be a certain reciprocal nature to it.” He appeared to be referring to the fact that some countries impose heavy tariffs on U.S. goods.

Before the House tax plan could get to Trump’s desk, it would have to pass the Senate, where skeptical Republicans are quietly urging the Trump administration and House Republicans to back off a border adjustment tax. They say any tax overhaul that includes a BAT won’t pass the Senate, so a protracted debate over the ideas is a waste of precious legislative time.

Brady has said he’s willing to revise the plan by creating a “deliberate transition period” that would give companies time to bring manufacturing and supply chains back to the U.S.

Monahan, of the Indiana Retail Council, said that’s unrealistic.

“I don’t see how that works for retailers who are selling hundreds of thousands of different items in the stores,” he said, “and how in the world any member of Congress could imagine that somehow the source for all those goods would suddenly shift back to American shores over some a transition period.”

USA TODAY'S Deidre Shesgreen and Herb Jackson contributed to this story.

Contact Maureen Groppe at mgroppe@gannett.com. Follow her on Twitter: @mgroppe.

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