The retail industry is going through a rough transformation.
This shift in the way that retailers operate is evident from consumers’ shift to more online purchases as well as brick-and-mortar stores integrating technology aspects into the shopping experience.
Aside from the eCommerce overload, retailers from across the board have been showing increased amounts of concern over a potential new border adjustment tax (BAT) proposed by U.S. Rep. Paul Ryan (R-Wis.), the speaker of the House of Representatives. Earlier this year, CNN provided a succinct definition of BAT:
“A border adjustment tax would give tax breaks to American companies that ship products to other countries, and it would strip away tax breaks from American companies that import goods from other countries.”
The hope in President Donald Trump’s administration is that through the implementation of this new tax American jobs will see a resurgence. Supporters of the tax like Archer Daniels Midland's chief executive have lamented this with comments to The Washington Post earlier the year. “This proposal offers the chance to give American farmers, American workers and American agriculture the chance to compete fully and to continue providing American products to customers around the globe,” he said.
If voted into law and implemented, the corporate tax rate will go from its current 35 percent down to 20 percent and any U.S.-based company utilizing goods and services developed in the States will have a 15 percent boost in profits after taxes. On the flip side, companies looking to import goods from other countries will see an increase in the amount of taxes paid, cutting into the overall profit.
U.S. companies exporting to other countries will not be taxed on those items leaving the country, which increases profits.
Increased American-based production and jobs are things that most in the country can probably agree upon, but retailers that have been working with international companies for years are likely worried about what the BAT will mean for their bottom line and consumers’ pocketbooks. In a letter to Congress titled "Congress Should Focus on Income Tax Reform, Not BAT," National Retail Federation (NRF) Senior Vice President David French encouraged lawmakers to not move forward with voting through BAT because of its impact on individual consumers.
“The solution for reducing the corporate tax rate should not be to shift the tax burden to individuals and families through the imposition of a consumption tax,” French said. “Since the overall purpose of pro-growth tax reform should be to improve the standard of living of the American people, it would be counterproductive to include a consumption tax in that plan.”
French also said retailers would probably have to raise prices to come out even, which would result in families paying approximately $1,700 more a year on any items purchased. NRF research shows small businesses would most likely see a burden from the proposed border tax. Three out of five small retailers said BAT would have a negative impact on business and 18 percent said their business would fail and result in more than 200,000 lost jobs due to reduced employee hours. Smaller retailers make up 98 percent of the retail industry, and NRF’s research also showed that these businesses provide 40 percent of retail jobs.
“Small retailers are probably the business group that is hardest hit by the potential impact of the BAT. They do not have the economies of scale to be able to reduce the higher costs of their merchandise with the BAT imposed and are most likely to lose sales to lower-priced competition,” French said. “We hope to work with you toward an alternative to the BAT and protect small retailers and the almost 17 million jobs that they contribute to the U.S. economy.”
At this point in time, it’s likely that the retail industry needs some form of stabilization as it goes through this transformative time. Given the back and forth between legislators and the retail industry, it may be best for government to wait until the tech-infusion adjustment is complete before moving on with a tax reform overhaul.
Whether or not this will happen is entirely up to Speaker Ryan and his team. Over the next few months, we’ll be keeping track of BAT and whether or not it will be a success for the GOP-led House.