A new coalition of businesses and trade associations has been created to oppose a border adjustment tax under consideration in the House of Representatives as part of a larger overhaul of the U.S. tax code. Americans for Affordable Products said the BAT would “significantly hurt” U.S. consumers and employers by increasing the cost of everyday products such as food, gas, and clothing by up to 20 percent.

As part of an effort to encourage domestic manufacturing, the BAT would disallow the existing tax deduction for costs associated with imported articles or inputs while exempting export revenue from corporate income tax calculations. This change is meant to bring the U.S. tax system more into line with those of major trading partners, which impose value-added taxes that are rebated when a product is exported and imposed when a product is imported. However, the AAP states that under the BAT a large U.S. company might pay virtually no corporate taxes “simply because it exports products” whereas another U.S. company delivering “affordable essentials” to its consumers “will be faced with crushing taxes simply because many of these essentials must be imported.”

The AAP said its members support tax reform, including proposals such as lowering the overall corporate tax rate and a territorial approach that would limit taxes on U.S. companies to income earned in the U.S. However, Club For Growth President David McIntosh said “all of that good reform could be wiped out” by the BAT, which the AAP said would cost U.S. consumers at least a trillion dollars over the next ten years while “Congress gives a huge tax cut to highly-profitable companies who already manipulate the U.S. tax code to pay no taxes.” The BAT could also force many retailers to “downsize or close their doors altogether,” which in turn would impact millions of other jobs in logistics, technology, and manufacturing.

In addition, the BAT could be challenged at the World Trade Organization on a number of grounds, which could lead to foreign countries levying an unprecedented amount of retaliatory duties on U.S. exports. A Reuters article noted that there is precedent for such action, as when Mexico increased tariffs on a range of politically sensitive U.S. goods after the U.S. failed to implement a NAFTA provision on cross-border access for cargo trucks.

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