Key US senators raise border tax concerns

Leading Republican members of the US Senate are concerned about the potential increase in the price of US domestic gasoline prices as a result of a border adjustment tax proposal advanced by their House colleagues.

The tax plan put forward by House Republicans would lower corporate tax rates to 20pc, down from 35pc, and partially make up for the lost revenue by changing the tax treatment of imports. The border adjustment tax would prevent corporations from taking a tax deduction on imported products, including crude and products, and eliminate taxes on exports.

"I worry about the politics of it, where you look at cutting corporate taxes but raising the taxes on consumers, through higher price of gasoline coming from refineries, consumer goods, automobiles," senate majority whip Jon Cornyn (R-Texas) said today at the CeraWeek conference in Houston.

"I am not really interested in anything that increases the price of gasoline," Senate Energy and Natural Resources Committee chairman Lisa Murkowski (R-Alaska) said.

House Republicans expect the border adjustment tax would generate about $100bn/yr in revenue, which they want to use to help pay for the loss of revenue that would come from lowering the corporate tax rate. The estimated revenue gain is based on the size of the US trade deficit. The US last year imported $734bn more than it exported, excluding the trade in services, according to the US Bureau of Economic Analysis.

"The more I look at it, the more I worry about the assumptions on which they are based," Cornyn said. "It is a huge gamble for $1 trillion of tax revenue."

Murkowski said she shared similar concerns. "We need to look at it very critically, making sure the assumptions on which [House Republicans] base their model really play forward."

Both Cornyn and Murkowski said they supported the principle of a corporate tax overhaul, since the last major change in the US tax system dates to 1986. But Cornyn said that pushing forward with the tax reform has to yield priority to the immediate task of confirming President Donald Trump's administration officials, rolling back federal regulations affecting energy and other industries and taking on former president Barack Obama's landmark healthcare legislation.

US treasury secretary Steven Mnuchin has said the administration would prefer to enact those tax changes before the congressional recess in August, a goal shared by the House Republican leadership. But Cornyn said "sometime in 2017" was a more realistic timeline than August. "Let us take the time to do it right," Murkowski said.

Senate majority leader Mitch McConnell (R-Kentucky) earlier this week suggested the August deadline for completing the tax overhaul was not realistic.

Both Cornyn and Murkowski said they support Trump's calls to renegotiate the North American Free Trade Agreement (Nafta) between Canada, Mexico and the US, while supporting the principle of free trade. The agreement, which went into effect in 1994, predates both the growth of US oil and gas production as a result of shale exploration and the historic opening of Mexico's energy sector, Murkowski said. "It is important to look at the agreement, in particular in the energy space," she said.

"Nafta is not a dirty word in Texas," Cornyn said. He said he was glad that Trump's commerce secretary Wilbur Ross said he would work to improve, rather than discard Nafta.