Building a Border Battle
Among turbulent legislative times in Washington, D.C., the possibility of a controversial border adjustment tax has resurfaced.
Calling themselves the American Made Coalition, CEOs from
some of the U.S.’s largest companies and corporations have urged
Congress to tackle our outdated tax system, passing “big and bold”
tax reform—including a border adjustment tax (BAT).
When it comes to deciphering the details and divining the direction
of a so-called BAT—along with the broader issue of federal tax
reform—it might be a good idea to have a good accountant, a
knowledgeable economist, and a plugged-in D.C. insider on your
“There’s a lot of complexity to this, and one of the biggest
challenges is tracking it all,” says Joseph Calianno, CPA, JD, LLM,
partner and international technical tax practice leader in
Washington, D.C. for Chicago-based BDO USA. “There are a lot
of things you have to be prepared for. You need to think about all
of the potential implications. You can’t just ignore it.”
As Congress and the presidential administration continue to
maneuver through turbulent legislative times in the District, talk of
tax reform and the possibility of an often controversial BAT has
While the BAT itself didn’t immediately appear on President
Trump’s tax reform agenda, tax and finance observers say that
doesn’t mean it’s completely off the table.
The question of just what the BAT might mean in the world of
corporate finance and trade—particularly for some Illinois firms
who would like to see it enacted—remains an open-ended one. It’s
also one that has CPAs and finance professionals on edge as they
work to help their clients plan for the seemingly unplannable:
guidance from Washington, D.C.
The BAT gained traction last year as part of an overall U.S. tax
reform package promoted by House Republicans, known more
widely as the House Blueprint. The Blueprint’s highlights included
cutting the corporate tax rate from the current 35 percent to 20
percent as a means of spurring economic growth and reinvestment.
The idea behind the BAT? Shifting corporate taxes from an “origin-based
tax” (where goods are manufactured) to a “destination-based
cash flow tax” (where goods are consumed), often referred to as a
territorial tax system. In short, a BAT would tax U.S. imports while
exempting U.S. manufacturing exports.
“It ignores cross-border payments and is trying to capture the net
value of consumption in the U.S.,” explains Rob Clary, principal in
the international tax practice for KPMG in Chicago. And,
predictably, the BAT has backers—and opponents.
“On the pro side, people say it encourages domestic production of
goods in the U.S.,” he says. “On the con side, people say we have
a global economy that is built on imports, and the import scenario
will lead to higher priced products because of the higher taxes.”
Illinois-based manufacturing heavyweights with significant global
sales, such as Chicago-based Boeing and Peoria-headquartered
Caterpillar, have joined forces with similar-minded companies in
the American Made Coalition, a lobbying and public information
group to support the BAT. And while the coalition includes other
corporate titans such as General Electric, Johnson & Johnson,
MillerCoors, and United Technologies, it also includes smaller but
wide-reaching players like Mount Prospect, Ill.-based Cummins
Allison Corp., the only U.S.-based manufacturer and supplier of
coin and currency handling products.
In a posting on the American Made Coalition website, company Chairman and CEO William
Jones spelled out his support for the BAT.
“Cutting business taxes and rebating taxes on my exported
machines would allow my company to increase sales,” he wrote.
“Although my costs would rise somewhat because I have to import
certain components that are no longer made domestically, the
border tax would compensate for that loss by canceling out the tax-rebate
advantage currently enjoyed by my foreign competitors.”
And increased sales, he adds, would lead to more local hiring and
more local tax revenues for an improved economy. It’s a theme
echoed by American Made Coalition spokesman John Gentzel,
who calls the BAT a vital component of the House Blueprint. The
BAT, he says, is not a stand-alone tax and is part of overall tax
“People recognize that the current tax code is broken and that it’s
too complex,” Gentzel says. “Our broad hope is for pro-growth tax
reform. That’s what we’re hoping to see accomplished here.”
At the same time, the National Retail Federation (NRF), whose
members range from big-box retailers to mom-and-pop shops, has
also launched a strident anti-BAT campaign, predicting that a BAT
would substantially drive up the tax bills of many import-dependent
retailers—particularly small business owners.
The NRF has produced a series of As Seen on TV-style commercials
taking aim at the BAT:
“It’ll tax your car, your food, your gas, your medicine, your
clothes—you name it, BAT will tax it!
And that’s not all. As a special bonus, we’ll include the new job-killing
formula—for free! You’ll get it all—the income-chilling, tax-bringing,
Further pressing the concern, a survey of the University of
Chicago’s Initiative on Global Market Economic Experts Panel in
April found that 40 percent of respondents agreed that a BAT would
“substantially raise prices for U.S. consumers,” with just 19 percent
“The big concern is that if you’re a net importer, this could have a
significant impact on your tax position,” Calianno says.
While the University of Chicago’s panel findings raised concern
about rising prices under the BAT, they also highlighted the biggest:
uncertainty. Because, while 40 percent of those surveyed said
higher prices were likely under the BAT, the same percentage said
that they just weren’t sure.
And for many financial observers, that’s just where the problem lies
now—tax reform has become an unpredictable waiting game.
“It still isn’t clear where the administration is on this,” Clary says.
“We have a lot of proposals out there in the Tax Reform
Sweepstakes, and the BAT is still out there.”
Questions also linger about the survivability of a BAT, either as
proposed or in an amended form.
“How will it affect importers? How will it affect costs? This is
something that is outside of the scope of tax geeks,” Clary adds.
“The economists are continuing to deliberate on this.”
Calianno adds that the complexity of modern global trade only
increases uncertainty. Many companies regularly import and export
raw materials and goods to create products, he says, which could
blur the lines of what’s taxable and what isn’t. Questions also
remain about services, aside from physical products.
As a result, Clary and Calianno say that accounting firms are
spending more time with their clients talking about what may or
may not happen, and how to prepare for what comes out of
“Our clients are preparing for multiple scenarios. We’re sitting
down with them and helping them understand the potential
impacts to their business,” Clary explains.
And all that complexity and those concerns could bring a mixed
bag for accountants, as well, Calianno says. “To a large degree,
accounting firms are providing a service, and they’re providing this
service all over the globe,” he says, meaning, while many CPAs
would do well to develop sophisticated tracking systems for their
clients, firms themselves need to consider their own tax
To a great degree, this all adds up to a great deal of uneasiness for
finance professionals. “It’s a challenging pill to swallow,” Clary
says. “And businesses don’t like uncertainty.”