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U.S. Republican ties lower business tax rate to border adjustment

By David Morgan

WASHINGTON (Reuters) - A leading Republican lawmaker warned on Tuesday that Congress will not be able to lower the U.S. corporate tax rate to the 15 to 20 percent range sought by President Donald Trump unless a controversial "border adjustment" proposal remains part of tax reform.

The proposal, known as border adjustability, represents a dramatic departure from current U.S. policy. It would exempt export revenues from taxation but impose a 20 percent tax on imports.

Escalating the war of words over a measure opposed by retailers, oil refiners and automakers, House Ways and Means Committee Chairman Kevin Brady said there would be "severe consequences" for tax reform, U.S. competition and Trump's job creation goals if special interests succeed in blocking border adjustability.

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"Tax rates on businesses would have to increase significantly from the proposed 15 percent and 20 percent rates, undercutting our ability to make America competitive again," the Texas Republican told the U.S. Chamber of Commerce.

Brady was speaking a day after Trump said his administration is trying to get the current 35 percent corporate tax rate down to between the 15 percent rate he has proposed and the 20 percent rate contained in the tax reform blueprint unveiled last June by Brady and House Speaker Paul Ryan.

Analysts say Trump could have trouble getting the rate much below 30 percent without border adjustability.

The provision would also go far to pay for lower tax rates by raising more than $1 trillion in revenues over a decade, according to independent analysts.

House Republicans have billed the provision as a way to attract foreign investment and keep U.S. companies and jobs from moving overseas.

"This is something that we think is clearly going to get our system re-set so that American jobs and American

businesses and American companies stay in this country," Ryan told reporters.

But it has powerful adversaries including billionaire industrialists Charles and David Koch, who spend heavily to support Republican candidates and conservative policies.

Trump himself poured cold water on the proposal in a recent Wall Street Journal interview, calling it "too complicated" and worrying that it would result in "a bad deal" for America.

Critics claim the measure would raise consumer prices for goods from apparel and electronics to gasoline, while potentially violating international trade rules.

House Republicans say the measure would neutralize higher import costs by strengthening the dollar and insist that it would pass muster with trade authorities.

(Reporting by David Morgan; Editing by Chizu Nomiyama and Cynthia Osterman)