With a new president in office and his first 100 days officially underway, the retail community is watching the White House and Capitol Hill closely to see which policy issues will advance beyond talking points and into real action items.
Throughout his campaign, President Trump frequently referred to the current U.S. tax code as outdated and in need of serious work. Echoing his sentiment are Republican House leaders who, last June, released "A Better Way for Tax Reform" blueprint for comprehensive tax reform. The fact that Congressional leadership and the Trump Administration are aligned on the need to pass tax reform this year bodes well for the likelihood that the retail industry will see changes to the tax code soon.
Retailers have long been advocates for comprehensive tax reform. With nearly 18 million Americans in retail jobs, more than 10 million additional jobs supported by retailers, and billions of dollars paid in federal, state, and local taxes, few industries have a greater impact on the U.S. economy than retail. However, the retail industry's effective tax rate, at 36.4 percent, is the fourth highest domestic effective tax rate of all the 18 major U.S. industrial sectors. This unduly burdensome rate undermines growth and job creation within the private sector's second-largest employing industry.
However, while we're pleased with some aspects of the House Republican Tax Reform Blueprint – specifically reducing the corporate tax rate to a globally-competitive 20% and the territorial tax approach – there are some components of the proposal that are cause for concern. Specifically, a border adjustable tax, or a tax on products retailers import to the U.S., will significantly hurt retail customers and some of the country's largest employers.
Retail supply chains and sourcing operations are complex and involve many factors, such as pricing, access to raw materials, availability, and cost of labor. Taxing imports would have a disproportionate impact on U.S. retailers, who by necessity import much of their product. A border adjustable tax will force higher prices on consumer staples such as food, medicine, clothing, electronics, and home improvement items.
Luckily, President Trump has already spoken out against this provision. In a recent interview with the Wall Street Journal, the president warned that border adjustment "usually means we're going to get adjusted in a bad deal."
We agree; border adjustability is bad for retailers, bad for consumers, and bad for America.
So, as Congress moves forward with tax reform plans, RILA will work with industry partners and policymakers alike to ensure that any legislation omits this harmful border adjustable tax, and rather, supports job growth and lower prices for consumers.
Sandra L. Kennedy