President Donald Trump lit the fuse on tax reform in his usual style last week, promising on Twitter to deliver a “big tax reform and tax reduction” package today.
Now comes the hard part — propping up that tweet with policy and getting it through both houses of Congress, managing the fallout as billions of dollars shift from one bank account to another. It’s still not clear if crafting a new approach on taxes will amount to fireworks or a megaton explosion for fashion.
Trump is said to want to cut the corporate tax rate to 15 percent from 35 percent and has also called for lower taxes for individuals. Paying less to Uncle Sam is something most chief executive officers, shareholders and consumers can get behind, but there’s still no indication as to whether or not Trump will hue to a House approach that calls for a border adjustability tax.
If the White House supports the BAT tax, it will significantly raise the likelihood that fashion companies will get a lower base rate, but then also see it applied to the cost of goods made overseas, making for a meaningful tax hike in the aggregate.
Retailers and brands — which get the lion’s share of their goods from overseas — see the BAT tax as something akin to corporate Armageddon and have been railing against even the suggestion of such a maneuver.
During an appearance on CNBC, PVH Corp. chairman and ceo Emanuel Chirico didn’t mince his words on the subject: “It is a terrible idea, it’s basically a $500 billion hidden tax on the consumer. I couldn’t be more passionate about how bad this is, it’s just ill-founded.”
But so far, companies haven’t had much to actually fight against, just hints of a plan in a House tax blueprint.
VF Corp. chairman Eric Wiseman told investors in February that the apparel giant had worked out a number of BAT scenarios and have sought to “to connect with key legislators and policymakers to help educate and influence their understanding of the impacts on our business….At this point where we’re going to monitor and observe, because honestly until there’s a piece of legislation, there’s really nothing for us to react to.”
That could be about to change.
Tax reform comes rarely to the Beltway because it’s so complicated and, potentially, takes money out of so many pockets.
But Trump came into the Oval Office with big promises and while he’s made many consequential moves — such as yanking the U.S. out of the Trans-Pacific Partnership — his promise to repeal his predecessor’s signature health-care reform failed, leaving him with something to prove legislatively.
While Trump’s been criticized broadly for his many conflicting comments and course changes, he so far retains the support of his base. And although a recent Washington Post-ABC News poll found him to be the least popular president of modern times, only 2 percent of his supporters said they regretted voting for him.
To keep the support of that base (and to keep the consumer humming), Trump might have to deliver on some of his sweeping promises.
“There are heightened expectations that things like tax reform and other initiatives are going to get done and have a positive impact on household incomes, jobs and so forth,” said economist Frank Badillo, director of research at MacroSavvy. “If those expectations are met, great. If those expectations don’t get met, then there’s a risk there of a letdown that has some negative impact on growth and spending.”
Badillo’s research shows that spending confidence among Baby Boomers is strong, up 2.6 percent from a year ago, while confidence among Millennials was down 1.2 percent and sentiment for the middle Gen X crowd, which is generally midcareer and therefore most stable, slipped 0.4 percent.
But the retailers and their lobbyists say that spending machine could break down and lower-margin companies that rely on imports could go out of business if a BAT tax is broadly adopted.
While supporters of the tax approach argue that currencies will adjust to cancel out the effect of the tax, retail lobbyists say the industry will be forced to raise prices to carry the new tax burden.
David French, senior vice president of government relations at the National Retail Federation said: “When currencies adjust in academic text books, they adjust immediately and they adjust completely. In the real world, there’s a lot more uncertainty, they may adjust much more slowly, they may adjust incompletely.”
The NRF has estimated that the BAT tax as envisioned in the House blueprint could cost the average family $1,700 in its first year, including a $437 increase in their apparel and footwear costs.
Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said: “Companies at the lower margin scale of the business that don’t really have much ability to change, you can just see them get wiped out in a couple months. They can’t reduce their cost structure, they can’t turn around fast enough. They just don’t have the ability to withstand the price difference they have to face.”
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