May 23 (Reuters) - A "border adjustment" tax proposal meant to favor exports over imports is part of a wide-ranging tax reform plan supported by senior Republicans in the U.S. House of Representatives.
Businesses are divided over the border tax proposal, with import-heavy companies widely opposed and exporters in favor. The chief executives of retailer Target Corp and agribusiness Archer Daniels Midland Co offered conflicting views in a House hearing on Tuesday.
Here are basic facts about the House Republicans' tax plan:
IMPORT COST DEDUCTIBILITY
Companies pay tax on their taxable income, which equals revenue minus wages, interest, advertising and depreciation. Also deductible is the "cost of goods sold," which includes costs of buying products, including imports, for use in manufacturing or for resale.
The proposal would end the deductibility of import costs. Critics say importers would respond by passing on their higher tax costs to consumers through increased prices.
EXPORT INCOME EXCLUSION
In a counterbalancing step to boost exports, the proposal would let companies exclude from their taxable income the portion of their revenues derived from outside the United States. Only revenues derived from sales inside the United States would be taxable.
Companies would no longer be taxed on foreign income brought into the United States. About $2.6 trillion in profits now parked abroad would be repatriated and taxed, at 3.5 percent to 8.75 percent, payable over eight years.
BUSINESS TAX CUTS
The top corporate income tax rate, under the House Republicans' multifaceted plan, would fall to 20 percent from its present statutory level of 35 percent.
The proposal would set a top 25 percent rate for "pass-through" businesses, such as sole proprietorships, partnerships and S corporations. If the top individual tax rate stays at 39.6 percent, critics say the new pass-through cap would encourage people to dodge taxes by converting wages to business income.
The corporate alternative minimum tax would be eliminated.
The Republican proposal would allow companies to deduct the full cost of new machinery and inventories immediately. They now must reduce the value of such capital over time for wear and tear. This process occurs over several years, depending on the asset, and the depreciation costs are deductible.
The deduction for net interest expense on new loans would end, a change meant to reduce incentives for corporate "inversion" relocations abroad. This is raising concerns among some financial firms.
Advocates of the plan say a higher dollar value would offset any inflationary effect over time.
INDIVIDUAL TAX CODE
Republicans also want changes for individuals by reducing the number of tax brackets; consolidating standard deductions and exemptions; cutting capital gains and dividend tax rates; eliminating the estate tax; eliminating most itemized deductions, except mortgage interest and charitable giving; killing Obamacare taxes; and putting a new limit on tax exclusion for employer-provided healthcare. (Reporting by Kevin Drawbaugh; Editing by Lisa Von Ahn)