WASHINGTON — As a candidate, Donald J. Trump made a broad rewrite of the tax code sound simple: Slash income tax rates for people and companies, threaten to punish American firms that seek cheaper foreign labor with a tax on the goods they import from offshore factories, and pay for it with surging economic growth.
But President Trump is finding that enacting the first overhaul of the tax code in 30 years will not happen like the raft of executive orders he signed for the television cameras during his first week in office. The contortions that his administration went through over a single part of the tax puzzle — the tax treatment of imports — demonstrated how politically fraught the issue will be, even with Republicans controlling all the levers of power in Washington.
While Mr. Trump’s views on a tax code overhaul appear to still be evolving, his economic advisers have been tripped up over the virtues of the taxation of imports and a contentious provision in the House Republican tax plan that would effectively slap a 20 percent tax on imports to generate revenue and encourage domestic production and exports.
But there is a broader lesson in that single dispute: Any rewrite of the tax code — especially if it seeks to raise roughly the same amount of revenue that the current code brings in — will leave winners and losers. And the losers tend to make far more noise than the winners. If the president is spooked by those howls, a major tax measure that both the president and Congress have promised may never happen.
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“This absolutely could be as controversial as the Affordable Care Act because it will create losers,” said Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center. “We’re seeing just the beginning of this debate.”
The debate over the so-called border adjustment has already illustrated the point. This month, Larry Kudlow, the economic commentator who counseled Mr. Trump during the campaign, expressed some of the same concerns that Mr. Trump has shared about the complexity of the plan and warned that it was a form of government meddling that could doom tax reform.
“To renegotiate this into some kind of border adjustment, which will penalize imports and subsidize exports, that is an exercise in government planning and complexity that I believe is doomed to fail,” Mr. Kudlow said on CNBC.
On the other hand, Stephen Moore, the Heritage Foundation economist who helped develop Mr. Trump’s tax plan during the campaign, has been supportive. Mr. Trump has wavered on the import tax in the face of opposition from American retailers and oil companies, Mr. Moore said, but he expects the president to come around.
“I think he saw there was a kind of backlash against it and said we’re not going to do that,” Mr. Moore said. “I don’t think it’s ever been fully explained to him that this is a way of leveling the playing field.”
While American manufacturers would surely benefit, fierce resistance is mounting in corners of corporate America that rely on imports. Some are already musing that Mr. Trump’s ambitions may get the best of him and suggesting that a rewriting of the tax code without bipartisan input could turn the legislation into Mr. Trump’s Obamacare: a political anvil that his political opponents use to rally against him.
Potential losers made their voices heard last week over the border adjustment tax, an arcane but sweeping change. Similar to the value-added tax used in many countries, border adjustability would help offset the deep cuts that Republicans want to make to the corporate tax rate while preventing the deficit from swelling further. It would subject the money that companies use to import products and parts to income taxation, but exclude from taxation the revenues reaped from exports.
The next steps could be politically perilous for Republicans. Mr. Trump is scheduled to meet this week with Representative Kevin Brady of Texas, chairman of the House Ways and Means Committee, to hash out their differences on a tax overhaul amid confusion about where the president actually stands.
Mr. Trump expressed opposition to border adjustments this month, before backtracking and saying that he remained open to the idea. Then on Thursday his press secretary, Sean Spicer, added to the haziness by suggesting that such a tax was part of Mr. Trump’s broader reform vision — and a way to pay for a wall along the border with Mexico. He then played it down as just one of many options.
Academic economists theorize that the proposal would lead to a rise in the value of the dollar, making imports more affordable in spite of the new tax. But businesses that rely on imports are not buying it, and they are already lobbying to kill it. Even traditional Republican allies have been speaking out — especially oil and gas interests like Koch Industries, which import much of their products.
“The proposed border tax adjustment will distort the market, increase consumer prices and create an uneven playing field for companies and consumers alike,” said Philip Ellender, president of government and public affairs for Koch Companies Public Sector, the Koch lobbying arm. “Our tax system should encourage, not destroy, free exchange and trade resulting in robust commerce and lower, not higher, prices for consumers.”
The resistance was also on display last week as Mr. Brady, who has been the driving force behind the House Republican tax effort, made the rounds at the U.S. Chamber of Commerce and the Financial Services Roundtable, Wall Street’s lobby, to sell the plan and assuage concerns.
“We know we are throwing bold changes at the business community,” Mr. Brady told a businessman who represents hundreds of gasoline stations and is worried about inflation. “We don’t expect these models to change on a dime.”
Wherever the White House comes down, the Senate will also have to weigh in. Talk of a border tax has rankled senators from both parties, with Senator Chuck Schumer, the Democratic leader, accusing Republicans of making middle-class Americans pay for the border wall and Senator Lindsey Graham, Republican of South Carolina, panning any import tax that would increase the cost of Mexican products.
“Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea,” Mr. Graham wrote in a post on Twitter. “Mucho Sad.”
The border adjustment tax is likely the first of many battles that Mr. Trump and congressional Republicans will face as they pursue a comprehensive rewrite of the tax code. Changes to provisions such as mortgage deductions, the deductibility of employer-sponsored health plans and charitable deductions for individual income taxes would lead to far wider protests.
The injection of the politically charged border wall into the tax reform discussion has only served to make the debates more rancorous.
“The politics of it gets super messy once you start saying that a particular piece of broader tax policy is already going to be dedicated to paying for a certain infrastructure project,” said Tammy Frisby, a tax policy expert at Stanford University’s Hoover Institution, explaining her disappointment that the Trump administration has already been talking about assigning tax revenue. “My optimism for tax reform has plummeted.”
