The Koch political network moved against this threat hard and early. The network launched its attack on the BAT in December and January, before Trump’s inauguration and before the public, or even most Congress members, started thinking about the measure. The goal seemed clear: to kill the BAT in the crib, before a public debate could even begin.
The attack was well fashioned by Koch’s political team. After the Brattle Group report was released in December, Koch Industries did not talk in detail about the harm that the BAT posed to its oil business. Instead, the company’s political proxy groups framed the issue with different arguments. Americans for Prosperity started talking about the US tax code in terms of “crony capitalism” and a “rigged economy.” The group presented BAT as an odious corporate giveaway. Corporations were getting a tax cut, the group said, because the corporate tax rate would fall from 35 percent to 20 percent. But consumers would pick up the bill because prices for imported goods—like toys, gasoline, and electronics—would rise. This was a mischaracterization of what the BAT would do. More than a hundred countries had imposed the BAT (or a similar tax) and data showed that the tax caused consumer prices to rise, but only temporarily. The reasons for this were complicated, but they derived from the fact that a BAT strengthened the value of the home country’s currency. The incentive for domestic manufacturing would add to this effect, creating jobs and raising wages. The real entities that were harmed by a BAT were companies that sought to shift jobs overseas, and also the richest Americans who owned stocks in such companies. A Tax Foundation report estimated that the financial burden of the BAT would fall primarily on the richest 1 percent of Americans.
In the winter months of January and February, while most public attention was focused on the fight over Obamacare, Americans for Prosperity fully mobilized to defeat the BAT. In May, the group launched a high-profile campaign called “Un-Rig the Economy,” which made defeating the BAT a centerpiece of its efforts. AFP released a statement saying that “72 percent of Americans feel that our ‘economy is rigged to advantage the rich and powerful.’ And the biggest contributor to our country’s rigged economy is the US tax code.”
In fighting the BAT, Koch Industries seemed out of step with Republican voters. Koch had successfully grafted the fight against a cap-and-trade bill to the Tea Party movement, but it was more difficult to graft opposition to the BAT to a conservative movement that had just voted for an America First president. The Freedom Caucus, which was Koch’s strongest ally in Congress, was slow to pick up Koch’s cause. When the caucus met privately in January to discuss the BAT, the group was split. Some members supported the notion of cutting tax rates and shifting jobs back onshore.
After the closed-door meeting, Mark Meadows sounded open to the idea of supporting the BAT, even if he had some reservations. “The border adjustment thing is at twenty percent, so that would make sense,” Meadows told CQ Roll Call.
The weekend after Meadows made his comments, Americans for Prosperity sent a letter to Kevin Brady, chair of the Ways and Means Committee, making AFP’s opposition to the BAT clear, claiming that the BAT would hurt low-income Americans by making imports more expensive. That weekend, AFP’s president, Tim Phillips, gave a stirring speech at a donor conference in California, saying that the group would pour its resources into defeating the BAT because it was unprincipled. Within weeks, Meadows changed his view of the BAT. He began to say that he wouldn’t support it. But his opposition was still tepid. “Let’s go ahead and pass [a tax bill] without border adjustment, assuming that we can lower corporate [taxes] to twenty percent, flatten the rate out for individuals,” Meadows told the media outlet Axios.
Paul Ryan was unbending. He stubbornly insisted that the BAT was a necessary part of tax reform, even though his support meant that he was now fighting one of the Republican Party’s largest donor groups. “I obviously think border adjustment is the smart way to go,” Ryan said during a news conference in May. “I think it makes the tax code the most internationally competitive of any other version we’re looking at. And I think it removes all tax incentives for a firm to move . . . their production overseas.”
Americans for Prosperity brought its volunteers and employees to Washington, DC, to lobby against the BAT. They met with lawmakers from Ohio, North Carolina, Florida, and Virginia. The group ran ads attacking the BAT. “It’s safe to say it’s been a seven-figure effort in total, so far,” Tim Phillips told Congressional Quarterly.
If Ryan was fighting for the BAT, it was in part because of the issue of deficits. He had campaigned, for years, on the promise of reducing deficits. Now the Koch network was pushing Ryan to advocate a tax plan that would make the debt balloon. This was not hypocritical on the part of Koch’s network. It revealed, in fact, the network’s long-term goals and values. It revealed Charles Koch’s real thinking about government financing and the role that tax cuts should play.
This thinking was reflected in the political strategy articulated in 1977 by Murray Rothbard, Charles Koch’s partner in funding the libertarian Cato Institute.
In a confidential memo entitled “Toward a Strategy for Libertarian Social Change,” Rothbard said that the goal of cutting taxes was not to just stimulate economic growth. The goal was to fight oppression in the form of state-sanctioned robbery. Libertarians, Rothbard wrote, should not be concerned about creating budget deficits by cutting taxes. The deficits weakened “the enemy,” as Rothbard referred to the state, and strengthened the libertarian’s power to demand that the state reduce its spending and shrink its role in society. Deficits and debt were useful, in other words, because they weakened the state.
Both Republicans and Democrats squabbled about the level of taxation, Rothbard wrote. He continued:
The libertarian, in contrast, should always and everywhere support a tax cut as a reduction in State robbery. Then, when the budget is discussed, the libertarian should also support a reduction in government expenditures to eliminate a deficit. The point is that the State must be opposed and whittled down in every respect and at every point: e.g., in cutting taxes, or in cutting government expenditures. To advocate for raising taxes or to oppose cutting them in order to balance the budget is to oppose and undercut the libertarian goal.
If Paul Ryan felt that Koch’s political network turned a deaf ear to his pleas for fiscal responsibility in the form of a Border Adjustment Tax, he was correct. The effect of the Koch network’s efforts was not to balance the budget but to attack the state itself.
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As Americans for Prosperity was pressing its case publicly, the group was holding private meetings with the Trump administration to help shape the tax bill. One of the most important points of contact between the Koch network and the White House was a forty-seven-year-old official named Marc Short. He had a long history with Koch and a close working relationship with AFP president Tim Phillips. Short joined the Koch network in 2011, where he helped fund Freedom Partners, a nonprofit institution that acted like a clearinghouse for Koch’s donor network. Freedom Partners collected donations and disbursed them to Koch-funded groups. Few people knew the inner workings of the Koch political network better than Short.