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The “border adjustment tax” is a sales tax increase by another name

That’s a feature, not a bug.

Retailers across Texas and the country are warning that a proposed border adjustment tax would increase the cost of imports and, by extension, the price of food, clothing and other consumer goods. Texas companies, including Stage Stores of Houston and Neiman Marcus of Dallas, have joined more than 150 other U.S. firms in a coalition fighting a possible border tax, part of a broader tax overhaul championed by Rep. Kevin Brady, The Woodlands Republican who chairs the tax-writing Ways and Means Committee, and House Speaker Paul Ryan, R-Wisconsin.

The plan essentially proposes a 20 percent tax on imports, which the National Retail Federation, a trade group, expects would raise the price of consumer products by 15 percent. Randi Sonenshein, senior vice president of strategy and finance for Stage Stores, which has more than 800 locations in 38 states, said her company worries that the higher prices related to the tax would particularly hurt customers who shop at stores located in small and mid-size towns, where it primarily operates.

“The plan will have a disproportionately negative impact on retailers,” she said. “It’s a tough thing to contemplate.”

Border adjustment is one component of a tax plan that aims to shift the U.S. tax code toward favoring production of goods over their consumption. Under the plan, companies would lose deductions for the costs of importing goods; at the same time, sales revenues from goods they export would be exempt from corporate income taxes.

[…]

Companies with significant sales in foreign countries, including aerospace manufacturer Boeing, the industrial conglomerate General Electric, chemical maker Dow Chemical and pharmaceutical maker Pfizer, support the plan. But critics of border taxes say U.S. consumers will ultimately pay more, with the costs borne disproportionately by low- and middle income households.

If a border tax was enacted, apparel, autos, furniture and electronics equipment – much of which is imported – would see some of the largest price increases, at least initially, according to a recent analysis by the Wall Street investment bank Goldman Sachs. The National Retail Federation expects the cost of clothing, for example, would rise at least $350 a year for an average consumer.

Walmart, the nation’s largest retailer, as well as trade groups such as the U.S. Fashion Industry Association and the Association of Global Automakers, have joined the coalition against the plan, called Americans for Affordable Products.

The Texas Retailers Association, which represents companies of all sizes in every retail sector except convenience stores, has followed suit. George Kelemen, the association’s president and CEO, said every retail business in the state would be affected by the proposal in some way. In addition to clothing and other manufactured goods, food grown outside the United States, including everyday groceries, such as avocados, bananas and coffee would become pricier, he said.

“We are opposed to this,” he said. “It’s a cost passed on to the consumer.”

The real point of this is that once this is implemented, you – and by “you” I mean “Republicans” – can cut taxes elsewhere, which is always the goal. In that sense, it’s like the Craddick-era proposals to hike the state sales tax in return for a property tax cut. Dan Patrick would do that today if he thought he had the votes for it. I’m sure you can guess who would pay more and who would pay less in such a scenario. The bottom line is those tax cuts for the rich aren’t going to pay for themselves, but this might.

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2 Comments

  1. Bill Daniels says:

    I’m really hoping the border tax was more negotiating tactic than actual plan. I think the real financing plan ought to be a modest tax on remittances, which would probably be the fairest way to pay for the wall, since it isn’t just Mexicans that sneak across the border, but people from other nations, too, and there is a correlation between nations that have their citizens sneak in, and people in America wiring money abroad to those nations.

    Having said that, I’m OK with a modest new tax on imports from maquiladoras. Yes, it will cost American consumers more, but the trade off is it will be part of a coordinated plan to reinvigorate manufacturing here in the US. Protectionist? Probably. The key is finding the right balance, to do the most good for America, with the least harm, and it’s been a long time since that was a goal of US trade policy.

  2. Tory says:

    If they apply it to imported oil, it would be a boom for Houston and Texas, since domestic shale oil would suddenly become a lot more economic. It would also raise gas prices with follow-on reductions in use and carbon emissions – so it should have Green support as well.