WASHINGTON — Several fashion industry trade groups joined a coalition to raise concerns to House Committee on Ways and Means chairman Kevin Brady (R., Tex.) about a proposed new tax on imports that Congressional Republicans are considering.
The National Retail Federation, American Apparel & Footwear Association and Retail Industry Leaders Association signed a letter to Brady outlining concerns about regulation known as the “border adjustability tax” that is included in the House GOP blueprint on tax reform.
“Companies that rely on global supply chains would face huge business challenges caused by increased taxes and increased cost of goods, which would in turn likely result in reductions in employment, reduced capital investments and higher prices for consumers,” the business groups said in their letter.
House Republicans, led by Speaker Paul Ryan (R., Wis.), released an agenda dubbed “A Better Way” in June where they outlined proposals in a number of areas, including tax reform.
Congressional Republicans and separately, President-elect Donald Trump, have said they plan to make tax reform a priority next year. Trump has called for imposing taxes on the imports of companies that move offshore and want to import their goods into the U.S. and could be willing to consider the House GOP proposal.
Essentially, the border tax would be assessed on the full value of imports, but not on U.S. exports.
Nate Herman, senior vice president of supply chain at the AAFA, previously said the tax proposal is a concern and would “seem to harm our industry” because it imports the vast majority of its products.”
The AAFA also represents domestic manufacturers and Herman said the tax, if approved by Congress, would also hurt those manufacturers that import inputs for their domestic production.
Currently, companies that import products can deduct the cost of the product, including materials and labor costs, when determining income taxes, Herman said.
“Companies are currently paying taxes on their profits or anything above cost,” Herman said. “Under the proposal, we wouldn’t be allowed to deduct any of those costs [on imported] products.”
U.S. companies, on the other hand, would be able to continue to deduct the cost of their products if made here and would only be taxed on the profit, Herman said.
“The prevailing theory is that this wouldn’t impact [importers] because the overall tax rate would be lowered and the dollar would get stronger and therefore somehow counterbalance additional taxes on imports,” said Herman. “The argument is that it would be a net wash for us, but a big boon for domestic manufacturers that export products.”
David French, senior vice president for government relations at the NRF, said retailers support the overall goal of tax reform, but noted that the border adjustment tax is “alarming to retailers because it is a direct assault on the very complex global supply chains that retailers have.”
“We don’t think the lower [overall tax rate] they will eventually deliver is going to work for us after we have lost the deductability on the cost of [imported] goods and we are very concerned,” French said.