Making the tax border-adjusted — applying it to imports and not exports — is estimated to generate more than $1 trillion in federal revenue over a decade, according to Tax Foundation estimates. That revenue contribution could make it crucial to keeping any tax legislation deficit-neutral, a prerequisite for passing a tax bill through the Senate without Democratic votes.

'Real Questions'

Republicans in both chambers have said they need more information on how the border-tax measure would work and who it would affect before they can endorse it. Sen. Orrin Hatch, chairman of the tax-writing Finance Committee, has said “at least a handful” of senators have serious reservations about the border tax, and he personally still has questions about the proposal.

“I have some real questions about it right now,” Hatch, a Utah Republican, said during a Bloomberg Television interview Monday. “I'm going to be looking at it very carefully because that's going to be a very important part of what the House is going to do.”

Many other countries use value-added taxes, which include border adjustments. But there are key differences between VATs and the House GOP measure — and that means other countries provide little guidance for U.S. policymakers, according to many trade experts. That's mainly because the House plan's border-adjusted tax would include deductions for domestic labor costs and functionally replace the U.S. corporate income tax.

The tax proposal's supporters, including House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady, argue that macroeconomic factors would lead to a stronger dollar — reducing the cost of imports and increasing the cost of exports — evening out any effects on consumers over time.

Proponents say the dollar would strengthen because taxing imports would reduce U.S. demand for them, which means fewer dollars would end up overseas. That relative scarcity would push the dollar's value up compared to other currencies.

At the same time, exempting companies' exports from taxation would allow U.S. producers to lower their prices overseas. Lower prices would attract more foreign buyers, who'd need more U.S. dollars to make purchases. Their increased demand for the dollar would also push its value up.

'Hammers Consumers'

Pomerleau said in the report it's too early to assess any short-term impact of border adjustments because it's unclear whether lawmakers would include a phase-in period for them. Still, a border tax is trade-neutral and wouldn't put the U.S. at a disadvantage or give it an advantage, according to Pomerleau.

Brady has been trying to sell the border-adjustment plan to colleagues over the past month. He met with House conservatives last week. Following the meeting, House Freedom Caucus members still doesn't have an official position, according to Rep. Mark Meadows of North Carolina.

Brady, a Texas Republican, told the group that without the border-adjustment levy, meaningful tax reform couldn't happen, according to Meadows.

Some GOP senators have already said they're against the border tax or leaning toward opposing it. Sen. David Perdue, a Georgia Republican, called it “regressive” and said it “hammers consumers and shuts down economic growth” in a Feb. 8 letter to colleagues.

WTO Rules

Sen. Pat Roberts, a Kansas Republican, also said he has concerns with the proposal.

“I got a lot of questions about that. And I think — to be determined,” Roberts said in an interview. “My main concern is agriculture and the possibility of a trade war.”

The border-adjusted tax could also face challenges from the World Trade Organization. A key issue involves WTO rules for border adjustments — they're permitted for consumption-based taxes, like VATs, but not income taxes. Ryan and Brady say their plan, which would be the first of its kind globally, moves U.S. corporate taxes closer to a consumption base.

It's also unclear where President Donald Trump, who has said he's going to be releasing a tax plan within weeks, stands on the issue. He initially called the border tax “too complicated,” before aides said he was warming to it. He met with retailers Wednesday to discuss their opposition to a border tax.

Bloomberg News

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.