By Richard Rubin 

U.S. exporters are starting to put political weight behind a House Republican tax plan, touting the benefits of " border adjustment" to investors and forming a coalition to push the idea.

Companies such as Dow Chemical Co. and Lockheed Martin Co. have been speaking about the plan's benefits on earnings calls. On top of that, the American Made Coalition is launching an effort Thursday to rally support for border adjustment.

The moves by the exporters and other companies escalate a corporate tug of war against businesses including retailers, toy makers and oil refiners who are fighting the border-adjustment proposal, which would tax imports while exempting exports.

"American workers and businesses are not competing today on a level playing field with foreign competitors because of an outdated and unfair tax system," said John Gentzel, a spokesman for the American Made Coalition. The group's website says it includes companies in the manufacturing, high-tech and agriculture industries but doesn't list companies' names.

Border adjustment has been at the core of the policy dispute in Washington as Republicans try to make the biggest tax-code changes since 1986. The proposal could generate about $1 trillion to pay for cutting tax rates and help prevent the U.S. tax base from moving abroad; removing it would leave a big hole in the Republican plan.

But the plan--pushed by House Speaker Paul Ryan (R., Wis.) and Ways and Means Committee Chairman Kevin Brady (R., Texas)--has drawn pushback from retailers and some conservative groups and skepticism from GOP senators such as David Perdue of Georgia and Mike Lee of Utah. President Donald Trump has sent mixed signals on the idea.

Critics warn that taxing imports could cause companies to have tax bills that are larger than their profits or force them to raise prices on U.S. consumers. Retailers--including Wal-Mart Stores Inc., Target Corp., Nike Inc. and Gap Inc.--formed their own group, Americans for Affordable Products, which launched on Wednesday. Also on the list is Sears Holdings Corp., whose former board member Steven Mnuchin is President Donald Trump's pick for Treasury secretary.

Economists say the importers' worries are overblown because border adjustment is likely to trigger a rise in the dollar. That could offset the border adjustment's effect on U.S. companies by reducing the cost of imported goods and making exports more expensive overseas.

There are concerns for exporters as well. Because exports wouldn't count as taxable income and domestic costs would still be deductible, many companies could end up with losses for U.S. corporate tax purposes, even if they are still making money. The prospect of profitable companies paying no taxes poses a political problem for proponents.

Yet if the losses aren't refundable, companies wouldn't get the full benefit of the export exemption but could suffer the effects of the stronger dollar.

The efforts by exporters and other large companies to mobilize politically and encourage border adjustment suggest either they don't think the currency would fully appreciate or that there are other benefits from the rest of the tax plan.

In the long run, the GOP tax plan is likely to encourage investment in the U.S. as a way to avoid foreign corporate income taxes, turning America into the "new Luxembourg," said University of Southern California law professor Ed Kleinbard.

Raytheon Co., which imports less than 5% of its total costs, is a potential supporter. Chief Executive Tom Kennedy told analysts Jan. 26. "If there is some type of tax effort or reform put out that has an advantage relative to exports, we'll more than likely get a significant tailwind from that," he said.

Gregory Hayes, chairman and CEO of United Technologies Corp., told analysts last week that the company would benefit from a "territorial" tax system that would end taxes on U.S. companies' foreign profits.

"There is still some question mark around border adjustability. We are a net exporter, so if that were to remain in place, it's probably a positive for us," Mr. Hayes said. "But again, there is a lot of moving pieces in tax reform, and we will be actively involved with the debate."

Write to Richard Rubin at richard.rubin@wsj.com

 

(END) Dow Jones Newswires

February 02, 2017 06:14 ET (11:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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