Proposed "Border Tax" Poses Potential Consequences for Retailers

Anyone familiar with the retail industry is aware that 2017 has been a year of myriad challenges and increasing store closings. This trend is not isolated to simply small retailers or retailers with worldwide name recognition – the problem is one faced by the retail industry across the board. Given the increasingly changing and competitive market for retailers, it is not surprising that lobbying efforts on behalf of the retail industry have increased substantially. Once significant concern to the retail industry that is currently being addressed by Congress is the increasing call for a "border adjustment tax."

In order to encourage domestic manufacturing and production, Republican leadership in the U.S. House of Representatives has tossed around a tax arrangement that would essentially lower the tax rate for exporters, while maintaining or even increasing the tax rate for importers. This would be accomplished by allowing a tax deduction for retailers selling "American-made" goods, while providing either no or less tax benefits to retailers dealing primarily in imported goods. With the majority of products sold by retailers in the United States being imported products, the tax implications would negatively affect a majority of retailers.

Retail groups are actively seeking to oppose the proposed changes, with the CEOs of several national retail chains having met with President Trump earlier in the year to discuss their concerns. Those concerns, however, work against the Trump Administrations promises to substantially increase domestic production, presumably creating jobs in the manufacturing sector. Retail lobbyists argue that even if increased manufacturing and jobs followed the proposed border tax, the brunt of the consequences would hit middle-class working families, who would likely see prices for consumer goods increase substantially in many cases.

Although House leadership has expressed definite interest in the border adjustment tax, signs from the White House suggest that the Trump Administration does not necessarily share the views of the House leadership. Secretary of the Treasury Steven Mnuchin has gone on the record criticizing the idea for creating an uneven playing field, and has allegedly signaled privately to lawmakers that the President is not a fan of the idea. Still, retailers continue their lobbying efforts until they are assured that the border tax adjustment is off the table for good.