With Memorial Day over, Congress is home this week — and now is the time for retailers large and small to tell lawmakers that the proposed border adjustment tax would be devastating for the economy. Retailers can email, but it’s far more effective to flood lawmakers’ district offices with calls and turn out for face-to-face meetings at town hall gatherings.
NRF took CEOs to Washington last week, but BAT supporters are not giving up. That’s why lawmakers in every congressional district need to hear the impact the BAT would have on retailers. Ask lawmakers to speak out — silence will be seen as support.
After a busy week of retail CEOs lobbying Congress to stop the proposed border adjustment tax, NRF and the anti-BAT coalition are continuing the fight with the launch of a new television commercial.
“Some in Congress are jeopardizing a once-in-a-generation opportunity to fix America’s broken tax code by pushing their harmful BAT tax,” an announcer says as the screen shows headlines from The New York Times, Washington Post and other newspapers.
“The Senate has said ‘No way,’ President Trump says it’s too complicated and his top economic advisor says it will force consumers to pay more for everyday things they rely on,” the announcer continues. Treasury Secretary Stephen Mnuchin follows in a soundbite, saying “It has the potential to pass on significant costs to the consumer.”
The ad’s final line — “Tell Congress to drop the BAT tax so real tax reform can get done that helps all Americans” — sums up how NRF feels about tax reform.
Retailers pay at or close to the full 35 percent federal corporate tax rate and benefit from few of the tax breaks that lower the effective rate paid by other industries. For years, we have called for comprehensive tax reform that would broaden the tax base by closing loopholes, then use the money that would be saved to lower tax rates for all businesses.
We don’t want to see the BAT get in the way of badly needed tax reform. That is why we brought 20 CEOs and C-suite executives to meetings last week with not one but three members of President Trump’s cabinet — Mnuchin, along with Commerce Secretary Wilbur Ross and Labor Secretary Alex Acosta. As seen from the Mnuchin quote above, the White House has questioned whether a BAT would work, but has yet to take an official position on the issue.
“This is something that would hit Americans in their pocketbook,” NRF President and CEO Matthew Shay told host Neil Cavuto on Fox Business television ahead of last week’s meetings, noting that the 20 percent import tax would apply to food, clothing, electronics, gasoline, automobiles, medicine and other products. “Everything would go up, and we don’t think that’s what voters voted for during the last election.”
“We are strong supporters of tax reform — nobody supports reform more than the retail industry,” Shay said. “But we just think this one element is the wrong way to approach reform.”
Chip Bergh, president and CEO of NRF member Levi Strauss & Company, speaking on CNBC’s Squawk Box, agreed that tax reform is important.
“But including a border-adjusted tax as a way to fund this is absolutely wrong,” Bergh said. “It’s going to be bad for our company for sure, but we think it’s also going to be bad for the consumer and ultimately bad for the economy.”
“The impact of a border adjustment tax on Levi Strauss & Company is that it would wipe out our global profitability,” Bergh said. “Death is not an option. Our only real alternative would be to immediately raise prices.”
Setting up new U.S. factories to produce apparel “might create a lot of robots making our product,” he said, “but it wouldn’t necessarily translate to a lot of jobs.”
"It is our view that the pricing action that would have to happen in the marketplace would be severely detrimental to the retail industry and, more importantly, to consumers.”
“We believe the border adjustment tax is simply bad for consumers, so as a result we believe it’s bad for our company,” Chris Baldwin, CEO of NRF member BJ’s Wholesale Club, said on Fox Business’s Varney & Company. “Prices would go up by $1,700 for the average American consumer. That’s money they simply don’t have.”
“In the debate about this tax, there’s very little debate that prices will, in fact, go up,” Baldwin said. “There’s a great deal of debate about what will happen afterwards. But it is our view that the pricing action that would have to happen in the marketplace would be severely detrimental to the retail industry and, more importantly, to consumers.”
“The border adjustment tax would be a disaster for retail,” former NRF Chairman and former Saks Chairman and CEO Stephen Sadove said on Bloomberg television. “We call it an existential threat.”
The NRF fly-in also included executives from national retail brands including IKEA, Pier 1 Imports, Ascena Retail Group, QVC, Dillards and AutoNation, along with two independent retailers, American Sale from Chicago and Random Harvest from Virginia.
During the visits with Cabinet members and two dozen key members of Congress, NRF distributed bright yellow “B.A.T. Tax” baseball caps, similar to those seen in NRF’s recent television commercial that aired during “Saturday Night Live.” The hats came with a hang tag explaining that they had been sourced in China because they cost half as much as U.S.-made hats and could be produced four times as fast.
The CEO meetings came a day after a House Ways and Means Committee hearing on May 23 where retailers’ opposition to the BAT was led by Brian Cornell, chairman and CEO of NRF member Target.
“From large companies like Target to small American businesses, we’ve all come to the same conclusion,” Cornell told the committee. “Under the new border adjustment tax, American families — your constituents — would pay more so many multinational corporations can pay even less.”
Cornell said Target currently pays the full 35 percent federal corporate tax rate but would pay 75 percent under the BAT, eliminating capital for job-creating projects like its recently announced plan to invest $7 billion to build new stores, renovate existing ones and update its transportation network. He said BAT supporters’ argument that currency rates would adjust to compensate for the new tax is “academic theory … that might work in a textbook” but workers and American families should not be told that their paychecks and budgets “are being wagered on an unproven and untested theory.”
“In the short and medium run, this plan is likely to generate large economic shocks that would harm American workers and trade-dependent businesses.”
Kimberly Clausing, an economics professor at Reed College in Portland, Ore., agreed, telling the committee the currency fluctuation argument has “many factors that may interfere” with it working.
“In the short and medium run, this plan is likely to generate large economic shocks that would harm American workers and trade-dependent businesses,” Clausing said. “This is an untested tax reform that is not ready for primetime.”
Representative Richard Neal, the senior Democrat on the committee, said there are “significant economic uncertainties and risks associated with a border adjustment tax” and noted NRF’s estimate that the BAT could cost consumers up to $1,700 in increased prices in the first year alone. He questioned why no small businesses were allowed to testify at the hearing, citing NRF member David Ratner, owner of a pet-supply store in Neal’s congressional district in Massachusetts, as an example of a small business owner who would be affected. Neal said Ratner told him he would be forced to cut payroll if the BAT is enacted and is “very concerned” by the impact the proposal would have on his business.
NRF told the committee in a written statement that the BAT “would cause the tax burden on retailers to skyrocket” and that retailers would “have no choice” but to pass along the increased cost to their customers in the form of higher prices. NRF called on the committee to approve tax reform that eliminates tax breaks and lowers rates but to reject “a new tax system that shifts the burden of taxation to the consumer.”
Considerable progress was made in the past week to explain the downside of the BAT. But backers of this plan are not giving up — and neither are we.
