Trump's inaugural committee chief lowballs the size of a 'border adjusted' tax

The territorial tax question: Barrack
The territorial tax question: Barrack

Tom Barrack, head of Donald Trump's inaugural committee, believes any "border adjustment tax" that's put in place will ultimately come in at only 10 percent — not the 20 percent that's been discussed — when corporate tax reform is all said and done.

"I think you'll see a compromise on the personal income tax rate, the corporate income tax rate, the repatriation rate, tied to an investment tax credit, and that border tax, instead of 20 percent ... maybe 10 percent," Barrack, a private equity investor and head of Colony Capital, told CNBC's "Squawk Box" on Wednesday.

Currently, U.S. corporations are taxed on their worldwide profits at 35 percent. A House GOP plan would change that radically, however: As it stands now, that proposed formula would tax domestic revenue (minus domestic costs) at a much lower rate of 20 percent. The net effect would be one that favors exports over imports.

Breaking down the border tax
Breaking down the border tax

Barrack told CNBC in a follow-up interview that he was speaking with no particular knowledge of specific discussions, but rather from personal experience as a businessman frequently involved in negotiations. He also said he does not know whether the Trump team or the president-elect himself supports a border adjustment tax, which would mark a dramatic departure from the current form of U.S. corporate taxes.

"Border adjustability" is a key feature of House Speaker Paul Ryan's blueprint for Republican reform "A Better Way." It is supported by the head of the Ways and Means Committee, Rep. Kevin Brady. Sen. Rob Portman of Ohio endorsed the idea during an interview on "Squawk Box" last week.

Barrack said the border adjustment tax is under consideration by the House because "you need a revenue piece to offset the cost piece" of corporate tax reform.

Thomas 'Tom' Barrack, founder of Colony Capital LLC and chairman of U.S. President-elect Donald Trump's inaugural committee, speaks to members of the media in the lobby of Trump Tower in New York, U.S., on Tuesday, Jan. 10, 2017.
Anthony Behar | Pool | Bloomberg | Getty Images

In order to be considered "revenue neutral," tax changes that reduce revenue in one place must be offset by changes that increase elsewhere.

Supporters of tax reform want to lower the corporate rate from the current 35 percent. Additionally, they want to stop taxing corporations on their worldwide profits and instead move to what's known as a "territorial system" that taxes companies on only their U.S. operations. They argue it would make corporate America more competitive. However, those changes would lead to less tax revenue. Moving toward a system that essentially taxes imports helps offset that lost income.

A key reason that there's so much discussion about a border adjustment tax is that it raises a lot of money. According to the Tax Policy Center's analysis of the House GOP plan, the border adjustment feature would raise $1.2 trillion from 2016 to 2026. That would help offset the loss of tax revenue from a lower corporate tax rate (from 35 percent to 20 percent), which the Tax Policy Center says would cost $1.8 trillion.

Barrack described the ultimate form of tax reform to be a "tapestry that weaves all these things together."