3 Reasons the US President Trumps BAT is a Bad Idea
Matthew Shay, President and CEO of the US National Retail Federation writes why President Trumps Border Tax is a bad idea
As it became clear after the recent elections that comprehensive tax reform would be a top priority for both President Trump and congressional leadership, the retail industry was optimistic. Retailers have asked White House after White House and Congress after Congress to tackle tax reform for some time, and it looked like 2017 could be the year when the long-sought goal of adopting a simpler, fairer tax system could finally be accomplished.
But that was before House Republicans began pushing for a new USD 1 trillion border adjustment tax (BAT) that would impose a 20 % levy on imported goods — including the clothing, electronics and other consumer goods sold by retailers. The tax also impacts imported parts that many U.S. manufacturers use to create high-value Made in America products.
By lowering the corporate income tax rate to a globally competitive 20 percent, the GOP’s “Better Way” tax reform plan should be everything that retailers and our friends in the broader business community have collaboratively advocated for over the years. Unfortunately, the border adjustment tax washes away all those benefits and more for retailers. Many U.S. retailers know the new, lower statutory rate would be an illusion while their actual effective tax rates would spike to more than 100 percent of annual profits. Meanwhile, other American companies might see their effective tax rates fall to zero or even lower. Tax reform should be a win-win for the U.S. economy, but it is likely that tax reform with the border adjustment tax will create too much of a gulf between winners and losers to survive.
Here are three reasons why the BAT is a bad idea:
BAT is bad for consumers – The BAT would be a hidden national sales tax that would force retailers to increase consumer prices by about 15 percent on the first day. Gasoline would go up about 35 cents per gallon. That would cost the average American family up to USD 1700 a year, including more than USD 400 in added costs for clothing and about the same for gas, according to research conducted for the National Retail Federation. Low and middle-income consumers as well as those on fixed incomes would be the hardest hit.
BAT is bad for small businesses – Retailers support one out of four U.S. jobs, or 42 million positions — but retailers could see tax bills three to five times the amount of their profits, threatening to drive some merchants out of business if the economic experiment of BAT doesn’t succeed. When a retailer closes its doors, it takes with it jobs, both in retail and other industries tied to retail. The small retailers that make up 98 % of the retail industry and provide 40 percent of its jobs would be at the biggest risk.
BAT is bad economics – The BAT could be an interesting academic experiment in an economics classroom, but it’s a huge risk in the real world. Supporters claim the BAT would be offset by the lower corporate tax rate and that the U.S. dollar would strengthen, eventually making bottom-line prices a wash. The promise of a stronger dollar, however, may never fully materialize; a number of economists doubt whether those changes would come fast enough or be large enough to save companies hit with higher costs in the meantime. Even Federal Reserve Chairwoman Janet Yellen has said there is “great uncertainty.”
Comprehensive tax reform is a good idea that promises to stimulate the U.S. economy while benefiting individuals and businesses alike. But the BAT is a bad bet on unproven economic theory — a risk our nation cannot afford to take.