As lawmakers set out to implement one of the broadest reforms to the tax code in decades, one proposal has companies gearing up for a rebellion against politicians they traditionally view as close, pro-business allies. Republicans in the House of Representatives and President-elect Donald Trump seem prepared to deal a blow to import-dependent companies with taxes aimed at penalizing them for not buying “Made in America” goods.
The proposal is part of the House Ways and Means Committee’s blueprint for the tax overhaul, a sweeping raft of tax cuts its authors say would lead to an era of unprecedented growth. According to the House proposal, taxing imported goods “will eliminate the incentives created by our current tax system to move or locate operations outside the United States.”
Though technically not an import tariff, the so-called border tax adjustment prevents companies from writing off import costs on their taxable income, effectively raising their tax bills. Trump has repeatedly called for protective tariffs, so it’s likely he will be on board unless he’s convinced otherwise by industry leaders.
“Our goal should be to try to make everything we can in the United States so that the money gets put in the pockets of Americans," incoming White House Chief of Staff Reince Priebus told radio host Hugh Hewitt on Wednesday. “And we want to see the potential for a change in that border adjustability so that American jobs are protected.”
To import-reliant businesses, the border tax adjustment is a poison pill, and bigger companies are preparing for war to ensure President-elect Donald Trump and his Republican allies in Congress know just how much they hate this idea.
The border tax adjustment would have the biggest impact on clothing and shoes — almost everything Americans wear is manufactured abroad — as well consumer electronics, furniture and home appliances. Big companies like Wal-Mart, Target, Home Depot, Nike and IKEA would see their import costs rise immensely since so many, if not most, of the products they manufacture or sell are imported.
“The apparel and footwear industry has been global for more than a generation and is reliant on global supply chains to provide the products that American consumers want to buy,” Stephen Lamar, executive vice-president of the American Apparel and Footwear Association, told Salon by email. “This change to the tax code would have an outsized adverse impact on our industry, so it is something we are taking very seriously.”
The National Retail Federation trade group agrees, and has said the import tax could raise the tax bills of some apparel chains by a factor of five.
“The proposed border tax adjustment will distort the market, increase consumer prices and create an uneven playing field for companies and consumers alike,” said a statement from Koch Industries, the industrial conglomerate principally owned and managed by Charles and David Koch, the politically active libertarian duo that tends to throw their support to Republicans.
Because it’s part of a larger raft of corporate tax cuts, it’s not clear how this import tax would impact the price of goods, but Lamar said it’s likely to cause a net increase in costs for many companies that exceed their operating profits, tipping them into the red.
“Companies would have to deal with this existential threat by increasing costs to consumers and/or reducing payroll – neither of which would support sustained economic growth in our country,” he said in the email to Salon.