Border Adjustment Tax Campaign

Bad for Consumers, Retailers & America

Retailers have long supported comprehensive tax reform that will benefit industry and consumers alike. At 36.4%, the retail industry’s effective tax rate is the fourth-highest among the 18 major industrial sectors. 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 adopting a territorial tax approach — the inclusion of a border-adjustable tax (BAT) will significantly hurt retail customers and some of the country’s largest employers. Phasing in the border-adjustable tax over 5 years, as recently suggested, would do nothing to address its fundamental flaws and would still result in price increases for consumers and a significant tax increase for retailers.  

Why a Border-Adjustable Tax Hurts Consumers and Retailers  

Higher Consumer Pricing. 

A border-adjustable tax will force retailers to significantly raise prices on consumer staples such as food, medicine, clothing, electronics, and home improvement items. Retail supply chains and sourcing operations are complex and involve many factors, including pricing, access to raw materials, availability, and labor costs. Taxing imports would have a disproportionate impact on U.S. retailers, who by necessity import much of their product.  

Many Imported Items Have No Domestic Equivalent.

Many personal necessities, such as life-saving drugs, and items essential to the operation of U.S. small businesses, such as computers, have no domestically manufactured equivalent and won’t for the foreseeable future.  

The Exchange Rate Myth.

Some economists claim that higher prices would be immediately offset by changes in exchange rates or currency fluctuations. However, at least two large countries that we import from—China and Vietnam—do not have a floating currency. Furthermore, many contracts for imported products are denominated in dollars rather than the local currency, rendering currency fluctuations meaningless. In the real world, it is unrealistic to expect currency fluctuations to offset a large additional tax imposed on consumers.  

Punishes America’s Largest Private Employing Industry With A Huge Tax Increase Placed On Retailers.

Retail businesses employ or support the employment of 42 million people in the United States. Increasing taxes on this industry would devastate consumers and force some retailers out of business. For some retailers, the effects of the border-adjustable tax would be that tax liability exceeds net income. Businesses in that position would not remain viable despite efforts to cut costs and the need to raise prices on consumer goods.  

Resources

• Border Adjustment Taxation - the Implications