Simon, who left Wal-Mart in 2014, testified at a hearing of the House Ways and Means Committee on Capitol Hill Tuesday, saying that a BAT tax could help reenergize the American manufacturing base and the middle class. But he also noted that it would have to be phased in, particularly for fashion.
Retailers have loudly and repeatedly signaled their almost universal loathing for the idea of a BAT tax and Target Corp. ceo Brian Cornell did so again in his own testimony on Tuesday to the committee.
Nate Herman, senior vice president of supply chain at the American Apparel & Footwear Association, which opposes the BAT, said the hearing went well and showed that a majority of the committee has “at the very least serious concerns” about employing such a tax.
Herman said the hearing could be “a turning point in the debate over the BAT.”
The proposal for the tax, put forward in a House blueprint last year, would lower the corporate tax rate but also apply that lower rate to the cost of goods made overseas, boosting the overall tax bill for most apparel retailers. Trade groups and chains have argued that the switch would raise their costs overnight and force them to hike prices.
Proponents of the BAT tax contend that currencies will adjust to account for the change.
Simon, who offered his views to the powerful House committee as a private citizen, acknowledged the challenges a BAT tax could pose to retail, but stressed the economic importance of manufacturing, which could be supported by the tax.
“I have weighed the considerable challenges this [BAT] proposal presents to retail with the significant benefits it will deliver to the economy as a whole and have concluded that properly implemented, it is in the best interest of our country for this to be considered,” he said.
Simon said a BAT system would also have to take into account “the transitional challenges that U.S. retailers will face.”
“The retail industry is already in flux,” he said. “They are dealing with generational technology and trend changes. I would submit this is part of the same issue. The challenges facing the middle class have put a damper on the power of the consumer in recent years and are now impacting retail broadly. Resurgence in American manufacturing would result in a stronger U.S. consumer and a very healthy retail industry over the long run.”
Given that “the long run is a very long time” for supply chains, he suggested a border tax come with a trigger system that would, for instance, tie the value of the dollar to tax-rate shifts.
In fashion, he noted that competitively priced U.S. product wouldn’t be available for “some time,” and suggested that retailers could buy styles made from U.S. cotton “lowering the impact of a border adjustment.”
But Target’s Cornell contended the BAT would be “a budget breaker” for middle-class working families. The new tax, as proposed, would more than double Target’s tax rate from 35 to 75 percent, the ceo said.
“If the government takes nearly four out of every $5 we make…there’s no capital to invest and no prospects for growth,” he said. “I know there is an academic theory that says currency markets will adjust. That families won’t be harmed under this plan. Well, that might work in a textbook. But I can’t tell my employees that their paychecks, and Congress shouldn’t tell American families that their budgets, are being wagered on an unproven and untested theory.”
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