FedEx Corp. Chief Executive Officer Fred Smith has spearheaded the creation of an alternative tax overhaul plan amid divisions in Washington over the proposals that Congress and President Donald Trump’s administration have offered.
Smith, also FedEx’s founder, has been directly involved in pitching his plan across corporate America as well as to the White House and congressional leaders, said Bobby Brown, the delivery company’s vice president of tax. FedEx decided to devise its own plan after the debate over the controversial border-adjusted tax on imports that House leaders favor bogged down the legislative process.
“We at FedEx, like many major U.S. companies, are concerned the window for tax reform is closing,” Smith said in an email. “Our current federal tax system is simply not globally competitive, retarding investment and the high paying jobs that follow.”
The FedEx plan begins with many of the provisions from a blueprint that House Republican leaders released a year ago -- with one major difference. It eliminates the much-maligned border-adjusted tax, according to a copy obtained by Bloomberg News and confirmed by FedEx.
The BAT, which Smith has criticized, calls for replacing the 35 percent corporate rate with a 20 percent tax rate on companies’ domestic sales and imports, while excluding their exports. The provision has been estimated to generate more than $1 trillion over a decade, which would help to pay for cutting tax rates. The FedEx initiative proposes several revenue raisers, including increasing employer Medicare taxes. It would also limit the tax cut available to high-income “pass-through” entities like limited liability companies.
Finalizing Details
The company is still working on finalizing the details and is having its impact on the federal deficit assessed -- or “scored” -- by a Washington tax consulting firm, Brown said. So far the goal hasn’t been to get other companies’ approval, just their feedback and suggestions, he said.“Everybody was happy to see a different way to get there, but nobody is beating the bushes saying this is the way to go,” Brown said. “The purpose of it was to get the discussion started with another plan because the House plan was the only game in town with any kind of detail. It seemed like border adjustability was sucking the momentum out of tax reform.”
With Republicans controlling the White House and Congress, party leaders saw overhauling the tax code as a realistic goal -- one that corporate America has been chasing for decades. But retailers and other importers have been on a mission to kill the border-adjusted tax because they say it would destroy their business models. That’s created opposition to the House plan and left the White House and the Senate struggling to figure out alternatives. Regardless, congressional leaders and the White House are now meeting regularly and say they’ll have a unified plan by September.
It’s unclear how much support Smith’s plan may garner once it’s finished. At least one facet of his proposal is likely to stir controversy: A pitch for increasing gasoline taxes that will be spent on infrastructure. Such tax hikes have been political non-starters in the past. That’s one of the primary reasons some big-name companies have balked at supporting it, according to two people who have seen the plan.
Gas and diesel user fees would be increased over five years to be in line with inflation levels, and subsequently indexed to inflation. Scott Greenberg, a senior analyst at the Tax Foundation, said indexing to inflation after five years could mean less opposition to the proposal.