Republicans abandoned the idea of including a border-adjusted tax in tax reform — that is, of changing the business tax code so that exports would be tax-free and imports would be taxed. Retailers and some conservatives had strongly objected to the plan.
The BAT would have raised a lot of revenue to make up for tax cuts in the reform package: $1.2 trillion over ten years. Without that revenue, the tax-reform package is going to include fewer tax cuts. The tax-reform plan will have to feature a higher corporate tax rate, or slower business depreciation rules — the Republicans have already signaled that’s going to happen — or higher individual tax rates, or some combination of these things.
(That’s true even if Republicans decide they’re willing to pass a tax cut that increases the deficit by, say, $2 trillion over those ten years. The BAT would still have let them enact deeper cuts in other taxes while hitting their revenue target.)
I’m a little surprised Speaker Ryan stuck with the BAT for so long. It had seemed clear for months that there was no path for it in the Senate even if it passed the House. I’m assuming that tax reform would pass, if it passes, with no more than two Democratic votes. That means Republicans can’t afford to lose many votes, and the four Republican senators from the states where Walmart and Home Depot are headquartered seemed like, um, pretty likely no votes. The reason he stuck with it so long, I suspect, is that he thought it was a defensible policy that would make it possible for tax reform to be more ambitious. Now it will have to be less.