American CEOs send letter to House: Kill the 'made in America' tax

CEOs battle over Trump's tax reform agenda

More than a dozen chief executives from some of the nation's biggest manufacturing companies called on lawmakers Tuesday to overhaul the corporate tax code and embrace a controversial proposal that would reduce the cost of exports but penalize imports.

In a letter to House and Senate leadership, they argued that the current tax system penalizes American factory workers and restrains business investment and economic growth. Among the 16 executives who signed the letter are Dennis Muilenburg of Boeing, Jim Umpleby of Caterpillar, Thomas Kennedy of Raytheon and Gregory Hayes of United Technologies.

"We applaud your efforts to pursue tax reform that is both big and bold," the letter states. "Incremental tweaks will not level the playing field for American workers or dramatically reinvigorate economic growth."

President Donald Trump greets Boeing Chairman, President and CEO Dennis Muilenburg during a ceremony celebrating the rollout of the Boeing 787-10 Dreamliner at the Boeing South Carolina plant in North Charleston, South Carolina, February 17, 2017.
Randall Hill | Reuters

The letter underscores the deep division within the business community as Washington debates the most sweeping changes to the American tax system in more than 30 years.

The companies backing the letter are part of the newly formed American Made Coalition and would benefit from the proposal championed by House Speaker Paul Ryan.

That plan would reduce the corporate tax rate from 35 to 20 percent and allow exporters to deduct the cost of production from their taxable earnings. However, companies would not be able to deduct the cost of imports — a feature known as "border adjustment" that effectively imposes a tax on those imported goods.

The proposal is similar to the way European countries treat imports under the value-added tax system, and companies have long complained that American products are more expensive overseas as a result.

"This reform is consistent with the tax policies of nearly every other country in the world, and it would effectively end the 'Made in America' tax that creates an unfair advantage for foreign-based companies at the expense of U.S. jobs and economic growth," the letter states.

The plan faces significant opposition from the retail industry, however, and top executives from Best Buy, Target and Gap, among others, flew to Washington last week to press their case at the White House and on Capitol Hill. They have warned the proposal would raise their costs — and, by extension, prices for consumers. And they have established their own lobbying group, the Coalition for Affordable Products.

In addition, Ryan's proposal has received a lukewarm reception in the Senate so far. At least two Republicans, Mike Rounds of South Dakota and David Perdue of Georgia, have come out against it. About half a dozen others have said they have significant concerns about how the system would work in practice, jeopardizing Republicans' ability to garner the simple majority required for legislation to pass in Senate under budget reconciliation.

However, the White House has yet to weigh in on the proposal — and it could prove the deciding factor in the debate. President Donald Trump has pledged to unveil a "phenomenal" tax proposal within weeks but details remain unclear. During the election, he called for slashing the corporate tax rate from 35 to 15 percent but also repeatedly vowed to slap double-digit tariffs on imports.

Adopting Ryan's plan could fulfill both of those promises. White House spokesman Sean Spicer even floated using revenue raised through border adjustment to pay for the wall separating the United States from Mexico. Trump has, however, previously dismissed Ryan's proposal as too complicated.

On Friday, Boeing's chief executive had the president's ear. Muilenberg has been one of the most outspoken proponents of border adjustment, and Trump visited one of the company's factories in South Carolina for a raucous campaign-style rally.

At the end of his visit, Trump provided few hints of which way he is leaning.

"We are going to lower taxes on American business so it's cheaper and easier to produce products and beautiful things like airplanes right here in America," he said.