By Dominic Gates, The Seattle Times
SEATTLE — The trade group representing the nation’s largest aerospace and defense companies is throwing its full weight behind a sweeping Republican plan that would transform the U.S. tax system, lowering the corporate tax rate while imposing new taxes on imported goods.
In a letter Tuesday to congressional leaders, Boeing Chief Executive Dennis Muilenburg, who is chairman of the Aerospace Industries Association, or AIA, this year, expressed the group’s strong support for measures it described as “comprehensive reforms of our tax code.”
That puts all 330 companies in the aerospace lobbying group firmly on the side of what’s called the border adjustment tax, which they say will stimulate U.S. manufacturing jobs.
The tax-system reform package is hugely controversial and opposed in particular by large retailers such as Wal-Mart and Target, which say it will cause steep price increases for consumers.
Muilenburg — along with the CEOs of other major corporations including GE, Caterpillar, United Technologies, Raytheon, Oracle and Merck — had already last month joined the American Made Coalition that is lobbying for the change.
AIA Chief Executive David Melcher described the current U.S. tax system as “broken” and not globally competitive.
“We need a modern tax system which creates a level playing field with the rest of the world in order to locate and grow jobs, manufacturing and profits inside the United States,” Melcher said.
The plan proposed by House Speaker Paul Ryan and the chairman of the House Ways and Means Committee, Kevin Brady, represents a structural shift from taxing bottom-line corporate profits to taxing companies through their cash flow.
If the Ryan plan becomes law, every time an item is sold in the U.S., the sales revenue would be taxable at 20 percent, with deductions allowed for labor and inventory costs.
Another boost to business is that capital investment — such as the billions of dollars Boeing invests in its assembly plants — would be immediately deductible in the year the money is spent, instead of being accounted for through depreciation over many years.
The most controversial piece of the proposal is the “border adjustment” element, which would exempt U.S. exports from the tax entirely, while imports would be taxed at 20 percent.
President Donald Trump was initially cool to the plan but recently seems to have come around to the idea.
“I certainly support a form of tax on the border, because everybody else does,” Trump told Reuters last month.
Bloomberg News reported that top Trump strategist Steve Bannon is an enthusiastic backer, citing a person familiar with discussions between Bannon and Ryan.
A company like Boeing, a huge net exporter, is likely to come out well ahead. The impact on other companies will vary according to how much they import.
How other countries might react to the tax on imports is uncertain.
Proponents of the new system insist it won’t distort the trade balance. But some experts are skeptical and believe U.S. trading partners, including perhaps China, could impose retaliatory tariffs — potentially even triggering a destructive trade war.
Nonetheless, the AIA leadership, in its letter, urges Congress “to act now.”