Talk of the US enacting a border adjustment tax is not as loud now as it was a few weeks ago. But the idea is still being discussed, and it could affect the US oil and gas industry by raising the price of imported crude oil.
Refiners obviously don't like this prospect. Some producers may feel differently, since it might help make their crude production more competitive domestically.
So while the border tax idea has not been sent to the federal policy proposal mortuary just yet, its actual enactment isn't certain either because there are so many uncertainties surrounding it.
It was part of a larger proposed federal tax restructuring plan in policy reforms recommended by US House Speaker Paul D. Ryan (R-Wis.) last summer.
The US Chamber of Commerce and other large business organizations have called for reducing the US corporate tax rate from its current 35% to about 25% so it would be competitive with other countries.
Tax policy reform prospects improved markedly on Nov. 8, 2016, when Donald J. Trump, who called for them, was elected US president. With Republicans in control of both the US Senate and House in the 115th Congress, the idea's chances improved even more.
Reducing the US corporate tax rate to a level competitive with other industrialized nations would take a big enough bite out of annual total federal revenues that a new one would be required.
A border adjustment tax (BAT) could be the most immediate and effective response, economists told the National Association of Regulatory Utility Commissioners' Gas Committee during NARUC's 2017 winter meeting.
They said that a properly structured BAT would tax goods coming into the US, but exclude those going out. That might help encourage more exports, including those of refined oil products, they said.
"Basically, border adjustments would create winners and losers," said Joe Mikrut, a partner at Capitol Tax Partners who was tax legislative counsel at the US Treasury Department for 3 years. "Caterpillar would be a winner because it primarily exports what it manufacturers. Wal-Mart would be a loser."
Investments and lawsuits
Panelists at a Feb. 8 discussion sponsored by the American Council for Capital Formation brought up other possible consequences. "When you stop taxing production and start taxing consumption, there could be more investments," said Michael J. Graetz, alumni professor of tax law at Columbia University.
"If this follows the House's blueprint, we can count on a good 4 years of litigation," said Gary Clyde Hufbauer of the Peterson Institute for International Economics.
Other countries also could adopt countervailing duties or mirror-image legislation that would not allow deductions of imported product price increases, he added.
