Republican defends border-adjustment tax after Trump criticism

By David Morgan

WASHINGTON (Reuters) - A top Republican in Congress on Wednesday defended his border-adjustable tax provision against criticism from President-elect Donald Trump, warning that U.S. jobs and companies will continue to move abroad unless the controversial measure is included in tax reform.

Representative Kevin Brady, chairman of the House of Representatives tax-writing committee that produced the proposal, said the reform measure to tax imports but not exports remains part of the discussions between Republican lawmakers and Trump's presidential transition team.

"I'm absolutely confident that we can move this provision forward," Brady said in an interview with CNBC. "Without it, America will continue to have incentives for jobs and manufacturing to leave the country. None of us want that."

Brady, who already faces mounting criticism from import-dependent industries that oppose the measure, was speaking a day after the Wall Street Journal published a Trump interview in which the Republican president-elect unexpectedly branded border adjustment as "too complicated."

"Anytime I hear border adjustment, I don't love it," Trump told the newspaper. "Because usually it means we're going to get adjusted into a bad deal."

Trump's comments surprised business lobbyists who believed he would support the provision as a way to increase the number of U.S. blue-collar jobs.

In response, Goldman Sachs lowered from 30 percent to 20 percent its "subjective probability" that border adjustment would be adopted as part of a tax reform legislative package.

Trump appeared to step back from his criticism in an interview published on Wednesday on the news website Axios, saying border adjustability was still on the table.

Without border adjustment, lawmakers could have to scale back the House Republican "Better Way" tax reform blueprint. The measure would raise more than $1 trillion in revenues over 10 years, according to independent analysts. Its loss would limit the size of tax cuts and jeopardize a related provision to end taxation on the foreign profits of U.S. corporations.

Advocates say border adjustment would encourage companies to establish manufacturing plants on American soil, because it would make U.S. export sales tax-exempt while preventing companies from deducting the cost of imports from their taxable income.

But a top Trump lieutenant failed to name border adjustment as a way to entice foreign companies to the United States during a Senate confirmation hearing. Wilbur Ross, Trump's nominee for commerce secretary, said instead that lowering the corporate tax rate is "probably the biggest single tool that we could use."

(Reporting by David Morgan; Editing by Jonathan Oatis)

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