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  The BAT would do this by making a seemingly subtle shift to the US corporate income tax system that had tremendously large effects. Under the current tax code in 2017, US companies were taxed based on the profits they earned from things that they produced in the United States. Under the BAT, companies would be taxed on profits from the things they sold in the United States. This difference, although it seemed obscure, would upend the economic logic that enticed companies to send their factories to Mexico and China. In essence, the BAT was a big tax break for exporters.III Under the BAT, exporters who made things in the United States and sold them overseas would not be taxed on income from the sale. Conversely, if a company produced goods in China and sold them in the United States, the company would pay a 20 percent tax on the profit.

  The end result of this tax shift was decidedly Trumpian. Most experts predicted that the BAT would encourage companies to locate their factories in the United States and make things to sell overseas. The change wouldn’t be dramatic, but it would move the country closer to Donald Trump’s vision of “America First.” The existing US tax code of 2017 did the opposite—it encouraged companies to move their production to low-cost countries like China (because the United States didn’t tax profits from overseas production) and sell them in the United States. For this reason, Ryan began to call the existing tax code the “Made in America Tax.” He bolstered his case for the BAT with poll numbers—the new surge of Trump voters supported the idea of a BAT overwhelmingly. They wanted to do anything they could to bring factories back to Wisconsin and Michigan.

  Charles Koch opposed the BAT for two reasons. The first was ideological—the BAT would impose a new tax, and Koch’s network opposed all new taxes. The second reason was more central to Koch Industries’ business. The BAT posed a grave threat to the company’s profits. In December of 2016, before Donald Trump was inaugurated, Koch’s lobbying office funded a study by a consulting firm called the Brattle Group. Unlike other groups that published Koch-funded studies, the Brattle Group clearly acknowledged Koch’s support in the beginning of the report. Kevin Neels, a coauthor of the study, said that Koch initially insisted that its support remain secret. But hiding Koch’s financing would have violated the Brattle Group’s policies, so Koch eventually agreed to let Brattle disclose it.

  The study showed why Koch might have deep concerns with the BAT. The tax could carry a high cost for energy companies that imported crude oil or other fuels from overseas. The Brattle Group report claimed that the BAT, by imposing a 20 percent tax on imported oil sold inside the United States, would raise gasoline prices by about 13 percent, or roughly 30 cents per gallon. This could be a nightmare for oil refineries that imported crude and sold it domestically. The damage could potentially be twofold and severe. First, it might cut into the refineries’ profit margins. Second, and most dangerous, the tax might dampen demand for gasoline by raising prices. If that happened, it would stoke demand for alternative energy sources, compounding the long-term problem of peak demand for gas.

  Koch Industries would later insist that it opposed the BAT only for purely ideological reasons. The company argued that it would have actually benefited if the border adjustment was imposed because the tax would raise consumer prices for gasoline and other products Koch sold. But the effect of a BAT on Koch’s business would be complicated. There was strong evidence that the tax could pose a threat to Koch Industries’ oil refinery in Pine Bend, which was still considered to be the company’s “crown jewel.” After decades, Pine Bend still benefited from occupying a stunningly profitable bottleneck in the US energy system. Cheap oil from Canada’s tar sands piled up at the US border without many buyers except Koch, and Koch could still sell its refined gasoline into midwestern markets where prices were relatively high thanks to a lack of refining capacity. Pine Bend was largely depending on imports, and the BAT would make those imports more expensive.

  In the month of February of 2017 alone, Koch Industries bought 9.55 million barrels of Canadian crude oil at Pine Bend. The average price at that time was $39.41 a barrel. If the BAT was imposed, the government would be entitled to $75.3 million in new taxes on products Koch made from that oil, for just one month of production. More importantly, the new tax might wipe out some of the price advantage that Koch had long realized by purchasing Canadian crude. Once the BAT was imposed at 20 percent, the cost of Canadian crude would be $47.29. That was still an advantage over the cost of a barrel under the WTIIV contract in Texas (which was $53.47), but far less of an advantage than before. And this change would be permanent. The crown jewel might be tarnished, and long-term sales would be hurt by the higher cost of gasoline.

  Koch’s public relations team claimed that the Pine Bend refinery could actually benefit from the BAT, because the tax would raise gasoline prices. It was difficult to disprove this hypothetical argument, but three former Koch commodities traders said that it was almost inconceivable that a BAT would benefit Pine Bend. One oil trader, intimately familiar with the economics of Pine Bend, said there was “no scenario” under which the refinery would benefit from a border tax. Another pointed out that any 20 percent increase in the cost of inputs could hurt a refining operation, even if gasoline prices rose. Regardless of the hypothetical scenarios from which the Pine Bend refinery might benefit, there was no doubt that a BAT could be disruptive to Koch’s refinery business.

  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 suppo
rted 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.

  * * *

  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.

  Short was the White House director of legislative affairs, the key liaison between Trump and Capitol Hill. He saw firsthand how Americans for Prosperity hindered the Obamacare repeal. He said the administration had learned its lesson by the time the tax bill came around—Short would bring aboard third-party groups like AFP early. He met several times with Tim Phillips in the Executive Office Building, next door to the White House.

  Short had worked closely with Phillips over the years. They had a warm rapport. During their meetings, Phillips said that AFP had a handful of key goals with the tax plan. One was to remove the BAT. The other was to remove the slew of personal deductions that had been written into the tax code over decades, allowing people to get tax breaks for their children, home offices, and other expenses. These deductions were the closest thing that middle-class families had to a shell company in the Cayman Islands. They were a key way to reduce the tax burden, and many families depended on them to claim tax returns. The tax code needed to be simplified, Phillips said.

  Short took Phillips’s concern back to the White House. Trump was willing to abandon the BAT, even though it was in line with his “America First” doctrine, Short recalled. Trump felt the BAT was too complicated to explain. He didn’t feel like he could rally political support for the measure. He was also willing to sign a bill that removed deductions.

  Tim Phillips was invited with a handful of other conservative movement leaders to a meeting with Trump in the White House. The tone was friendly. When Trump saw Phillips, he quipped, “You’re the Koch guy, right?” Short recalled. Phillips said that AFP was happy with the tax bill. Trump could count on the AFP foot soldiers to get out and support it. It was understood that the BAT was gone.

  * * *

  On July 27, Paul Ryan and Kevin Brady released a statement saying that the BAT proposal was dead and would not be included in the Republican tax reform bill. Koch had won the fight over the BAT before the public fight began.

  Now, with the BAT off the table, the Koch network deployed the second half of its block-and-tackle strategy. After it had blocked the Trumpian Border Adjustment Tax, the political network would help Congress, and President Trump, tackle any opposition to passing a tax cut bill that conformed more closely to Charles Koch’s vision.

  On July 31, AFP released a statement crowing about its achievement: “AFP’s Defeat of the Border Adjustment Tax Clears the Way for Principled Tax Reform.” Other interest groups had fought the bill, led by retailers such as Walmart and Best Buy that relied on imports for their sales. But none of the groups, and none of the companies, had a political network that could rival Charles Koch’s. None had armies of volunteers, or a network of wealthy donors who could fund attack ads.

  On August 8, Americans for Prosperity rented out a large event space in the Newseum, on Pennsylvania Avenue in downtown Washington, DC. The group brought its charter buses from small towns throughout Virginia. Volunteers arrived from North Carolina and Ohio. They filed into a conference room and were handed glossy placards demanding that lawmakers “unrig the economy” by passing tax cuts.

  Mark Meadows was the keynote speaker. If he was tepid in his opposition to the BAT before, he was fervent about it now.

  “There are some who have said: ‘Well, you know, those special interest groups, they want that border adjustment tax,’ ” Meadows said. “Well, I can tell you that Americans for Prosperity were leading the charge, many times, to say
: ‘What this is going to be is a new tax on the American people.’ When we talk about revenue neutral, what that means is that we’re going to cut your taxes in one place and we’re going to add them someplace else. There is no benefit from that.”

  Meadows encouraged the crowd to get out and fight for the new tax cut plan that was working its way through Congress. He warned them that speed was now of the essence—the bill had to be passed before opposition could build. Meadows, who had led the charge to obstruct Trump’s agenda, said the time for obstruction was over.

  “We’ve got a president in the White House who is not going to take any excuse. He’s saying that we’ve got to get this done. We’ve got to deliver. And quite frankly, it’s members in the Senate and the House that have kept him from accomplishing his agenda already!” he said.

  Meadows framed the debate over tax reform in populist terms. He rallied the volunteers by assuring them that if they helped pass the tax cut bill, they’d be helping reduce corruption in Washington.

  “For far too long, it’s been the well connected or the people that are well paid that actually get the biggest benefit in terms of our tax code,” he said. “That is going to change this year, when we actually start giving you back the money that you earned.”

  * * *

  The tax bill passed Congress in December, and was signed into law before Christmas. The most significant portion of the bill was an income tax cut for corporations, permanently reducing their tax rate from 35 percent to 21 percent, a cut that amounted to roughly $1 trillion over a decade. The bill also cut the income tax rate for the richest Americans from 39.6 percent to 37 percent.

  Without a border adjustment, the tax cut for corporations increased the federal deficit, making it difficult to pass the bill through the Senate. The reasons for this were complicated. The Republicans planned to use a process called “budget reconciliation,” which required only a bare majority vote. This allowed them to avoid a filibuster. But a bill passed through reconciliation could only add so much money to the deficit, and, without the BAT, the current tax cut plan added far too much. To accommodate for this fact, the Republicans came up with a simple maneuver. They made the tax cuts for middle-class families temporary. Those cuts would begin to expire in 2022 and be fully repealed by 2027, leaving many families with a tax increase. The middle class had been given a smaller tax cut, for a few years, in order to make the math work.