GOP's Nunes says it's 'a little offensive' to question border tax idea — and sets off a fight

Big battle over border adjustment tax

For those afraid of the "border adjustment" clause in the newly revealed GOP tax reform plan, Representative Devin Nunes from California maintains that the new tax system will spur job growth and create a U.S. system that's on par with the rest of the world.

"This plan is not controversial," Nunes, one of the GOP architects of the tax plan, told CNBC's "Power Lunch" on Thursday. "Quite frankly, it's a little offensive some major American companies that are importers who do business worldwide, are even raising concerns of this plan, because I don't see them going to Germany or Mexico or China to raise these concerns. And Donald Trump has been exactly right to call people out on this."

The GOP has called for a territorial tax system that imposes a levy based only on profits and costs within U.S. borders. The proposed system would replace the existing worldwide system, wherein U.S. companies are taxed at 35 percent of sales, no matter where on earth those sales take place.

The net effect of the plan, it's hoped, would be to encourage exports and discourage imports.

"I think this is a very simple way to border-adjust. It's not a VAT (value-added tax). It's not a sales tax. It's not a tariff. We want to have business taxes completely revamped in this country because we want to encourage people to invest in the economy so that jobs can be created," Nunes said. "We can get out of debt financing and into equity financing, so it's a plan that will really make America great again."

However, CNBC contributor Larry Kudlow vigorously disagreed with Nunes, saying that border adjustment unnecessarily complicates corporate tax reform efforts — possibly derailing them completely. It could even impair economic growth, he said.

"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," Kudlow said. "And if you stay with this, congressman, the whole corporate tax reform thing — the most important pro-growth measure — goes down the drain over this."