The Border Adjustment Tax and Its Victims

The proposed border adjustment tax poses an existential threat to any firm that imports a lot and exports a little. The refining industry is right in the crosshairs, with little scope to source more crude inputs domestically or to export more given domestic demand. For Valero, Tesoro and PBF – refiners representing three distinct operating regions – margins under a BAT regime, even if the top rate is reduced to 20%, fall sharply from their levels under the present 35% rate. This would be ameliorated, but not cured, by exempting Canadian and Mexican oil. The political situation is fluid, but we don’t think that a BAT regime will be imposed. But the stakes are enormous for the entire economy, and especially the energy industry.