Ryan, Bannon Forge Unexpected Alliance on Border Tax

House Speaker Paul Ryan has won over an unlikely ally to salvage his controversial tax plan: Steve Bannon.

Trump’s top strategist once described Ryan as “the enemy,” but now the former Breitbart News chief is the speaker’s best chance to win approval for his border-adjusted tax, which Republicans currently say has almost no hope of clearing the Senate.

In a handful of White House meetings, Ryan found that Bannon was perhaps the most enthusiastic backer of the border-adjustment plan, according to a senior administration official and a person familiar with the sessions.

A vigorous endorsement from Donald Trump could help save the border-adjustment plan, which is running into strong opposition from the energy industry and retailers. The retailers took the unusual step of launching an advertising campaign on the tax issue aimed at viewers of Fox News’ "Fox and Friends" and Saturday Night Live, TV programs Trump is known to watch.

The sudden alliance between Ryan and Bannon also shows how Republican leaders are adapting to the ultimate outsider president and seeking to curry favor with the handful of aides who can influence his thinking. It reflects the intense tussle inside the Trump administration to shape the policies of a president still new to Washington.

Inside the administration, the proposed tax has several backers, including Stephen Miller, a senior Trump policy aide; Chief of Staff Reince Priebus, a longtime Ryan ally; newly confirmed Commerce Secretary Wilbur Ross; and trade adviser Peter Navarro, according to a senior administration official. Jared Kushner, a senior adviser and Trump’s son-in-law, is said to be open to the proposal but hasn’t made up his mind.

National Economic Council director Gary Cohn and Treasury Secretary Steve Mnuchin are against the border adjustment part of Ryan’s plan, the official said. These and other White House officials have met with Ryan a handful of times to discuss policies including a tax overhaul, according to a person familiar with the meetings.

There is an irony in the former Breitbart editor warming up to one of Ryan’s pet proposals, given how critical that media outlet was of the House speaker over the past year. During last year’s campaign, articles on the conservative website painted Ryan as soft on crime and border security and as a secret supporter of Hillary Clinton.

But the argument that the border tax could boost goods stamped “Made in America” resonates with Bannon, according to the person familiar with the meetings, citing the strategist’s push for Trump’s protectionist stance during the campaign.

Ryan has also spoken positively of Bannon since the election, telling PBS Newshour on Feb 8, “We’re different kinds of conservatives, that we can safely say, I think. But we’re serving a purpose, which is to get this agenda passed, and on that agenda that we’ve rolled out, that we ran on, on that we agree. So I see a person that I have a common cause and purpose with.”

Campaign Promise

The proposed border-adjustment plan would tax U.S. companies’ domestic sales and imports at a new 20 percent rate, while exempting their exports. The change -- which would replace the existing 35 percent tax on companies’ global income -- would encourage companies to bring manufacturing back to the U.S. and reverse the tide of corporate tax inversions, Ryan says.

The border-adjusted tax is estimated to raise more than $1 trillion over 10 years -- revenue that Ryan and other supporters say is needed to help pay for other tax cuts for U.S. businesses and individuals. The eventual tax bill must reduce the deficit or be revenue-neutral to be considered under a maneuver called reconciliation, which would allow the Senate to bypass the usual 60-vote threshold and pass it with only GOP votes.

Democrats would likely filibuster the GOP’s broader tax plan if it were brought up as regular legislation. Ryan has warned his Republican colleagues that if they don’t use border adjustment to raise revenue, there won’t be any room to implement their desired tax cuts under reconciliation.

Still, the border-adjustment concept faces fierce opposition from retailers like Wal-Mart Stores Inc., automakers including Toyota Motor Corp. and oil refiners that rely on imported goods and materials. They argue the tax will be passed along to U.S. consumers, who’ll face higher prices for everyday materials. Billionaire investor Warren Buffett joined the criticism Monday, saying the plan “would be a big sales tax” and that it would hit “items that are not yachts or anything like that; they’re things that the ordinary person buys.”

Slashing the corporate and individual tax rates was a central campaign promise of Trump’s and a longtime dream for conservative lawmakers like Ryan. The expectation of a significant corporate tax cut has also contributed to the stock market’s rally since Trump was elected in November.

‘Some Concerns’

Cohn and Mnuchin, who like Bannon are veterans of Goldman Sachs Group Inc., oppose the border-adjustment concept, which critics say would be very disruptive to the global economy for its impact on trade, consumer prices and global commodity markets. Mnuchin said during a CNBC interview last week that he’s looking closely at border adjustments and has “some concerns” with the idea.

Cohn, the former president and chief operating officer of Goldman Sachs, is said to be working on a White House tax plan that Trump promised would be “phenomenal.” Cohn said earlier this month that he was meeting with members of Congress on proposals to cut income taxes for businesses and individuals, but hasn’t spoken publicly about the border adjustment element.

Ryan has spoken with Cohn at least five times in the past two months about tax changes, according to the person briefed on the meetings.

Ryan’s plan has also attracted some conservative opposition, including from Americans For Prosperity, a conservative advocacy group founded by billionaire brothers Charles and David Koch.

Still, Ryan recognizes that the most important person to convince is Trump himself, according to a person familiar with the meetings. Getting Bannon and other like-minded advisers on board would give the plan powerful supporters in Trump’s inner circle.

Trump last month said the border-adjustment proposal was “too complicated,” although more recently he told Reuters it could lead to more American jobs. When questioned about Trump’s evaluation of the impact the border-adjustment plan would have on consumer prices, White House press secretary Sean Spicer said the plan would be a net benefit for Americans.

“It’ll actually benefit consumers, benefit workers, and benefit our economy,” Spicer told reporters Feb. 23. “We are probably one of only a handful of developed countries that don’t have a tax system that looks at this.”

The hardest sell on the border adjustment might be with Republican lawmakers, who are wary of the impact it would have on retailers, automakers and oil refiners that could pass the cost on to consumers. John Cornyn, the No. 2 Senate Republican, said this month he didn’t see the votes lining up in favor of Ryan’s tax plan, and the GOP should consider alternatives.

Ryan recognizes the opposition but says he’s ready for the “drama” of the biggest tax overhaul in three decades.

“It’s going to be up, it’s going to be down, it’s going to be on, it’s going to be off,” Ryan told reporters Feb. 16. “You’re going to report 150 stories on tax reforms between now and when we get tax reform done.”

To contact the reporters on this story: Anna Edgerton in Washington at [email protected], Jennifer Jacobs in Washington at [email protected].

To contact the editors responsible for this story: Kevin Whitelaw at [email protected], John Voskuhl