FedEx CEO Fred Smith has spearheaded the creation of analternative tax overhaul plan amid divisions in Washingtonover the proposals that Congress and President Donald Trump'sadministration have offered.

Smith, also FedEx's founder, has been directly involved inpitching his plan across corporate America as well as to the WhiteHouse and congressional leaders, said Bobby Brown, the deliverycompany's vice president of tax. FedEx decided to devise its ownplan after the debate over the controversial border-adjusted tax onimports that House leaders favor bogged down the legislativeprocess.

“We at FedEx, like many major U.S. companies, are concerned thewindow for tax reform is closing,” Smith said in an email. “Ourcurrent 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 ablueprint that House Republican leaders released a year ago — withone major difference. It eliminates the much-malignedborder-adjusted tax, according to a copy obtained by Bloomberg Newsand confirmed by FedEx.

The BAT, which Smith has criticized, calls for replacing the 35%corporate rate with a 20% tax rate on companies' domestic sales andimports, while excluding their exports. The provision has beenestimated to generate more than $1 trillion over a decade, whichwould help to pay for cutting tax rates. The FedEx initiativeproposes several revenue raisers, including increasing employerMedicare taxes. It would also limit the tax cut available tohigh-income “pass-through” entities like limited liabilitycompanies.

The company is still working on finalizing the details and ishaving its impact on the federal deficit assessed — or “scored” —by a Washington tax consulting firm, Brown said. So far the goalhasn't been to get other companies' approval, just their feedbackand suggestions, he said.

“Everybody was happy to see a different way to get there, butnobody is beating the bushes saying this is the way to go,” Brownsaid. “The purpose of it was to get the discussion started withanother plan because the House plan was the only game in town withany kind of detail. It seemed like border adjustability was suckingthe momentum out of tax reform.”

With Republicans controlling the White House and Congress, partyleaders saw overhauling the tax code as a realistic goal — one thatcorporate America has been chasing for decades. But retailers andother importers have been on a mission to kill the border-adjustedtax because they say it would destroy their business models. That'screated opposition to the House plan and left the White House andthe Senate struggling to figure out alternatives. Regardless,congressional leaders and the White House are now meeting regularlyand say they'll have a unified plan by September.

It's unclear how much support Smith's plan may garner once it'sfinished. At least one facet of his proposal is likely to stircontroversy: A pitch for increasing gasoline taxes that will bespent on infrastructure. Such tax hikes have been politicalnonstarters in the past. That's one of the primary reasons somebig-name companies have balked at supporting it, according to twopeople who have seen the plan.

Gas and diesel user fees would be increased over five years tobe in line with inflation levels, and subsequently indexed toinflation. Scott Greenberg, a senior analyst at the Tax Foundation,said indexing to inflation after five years could mean lessopposition to the proposal.

A White House spokeswoman said National Economic CouncilDirector Gary Cohn is aware of the FedEx tax plan, but declined tocomment on whether or not the president and his advisers supportits proposals. The aide added that the White House is pleasedpeople are engaging and bringing forth their ideas.

Interest Expenses

The plan also calls for a 10% minimum tax on offshore passiveincome, such as interest, dividends, rents and royalties, inlocales with a tax rate below that threshold. It allows forcompanies to write off only half of their net interest expenses onfuture loans, down from a full write-off now. Ryan's plan wouldcompletely eliminate this deduction, which is valued in debt-fueledindustries like private equity. In another change from the Houseplan, which would allow for full, immediate expensing of companies'capital investments, the FedEx initiative would allow companies toimmediately deduct half that cost.

While he confirmed the authenticity of the plan that BloombergNews obtained, Brown said it will almost certainly change in thefuture.

“We're not saying this is the only way to get there,” Brownsaid. “It's just a way to show revenue can get there without borderadjustability. We're going to keep playing with it as we getfeedback from companies.”

Smith, who has a long history of fundraising for Republicans andlobbying for business-friendly policies, met with Trump in Novemberafter the election. FedEx hasn't joined the coalition of companiesopposing the border-adjusted tax, but Smith did criticize itspotential effect on trade because it taxes imported goods.

“This is just very destructive,” to international trade, Smithsaid on an earnings conference call in December. “It's not theproper solution.”

Bloomberg News

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