Retailers go to Congress to squash proposed border tax

Several of the nation's major retailers will meet with lawmakers Wednesday in hopes of thwarting a proposed import tax that they fear will wipe out profits and potentially lead to consumers paying more for items ranging from clothing to cars.

The House Ways and Means Committee confirmed that its chairman, Rep. Kevin Brady, R-Texas, will meet with retail executives about a GOP plan that would require U.S. companies to start paying taxes on what it costs them to import products from abroad.

The group convening in Washington includes executives from AutoZone, Tractor Supply, Jo-Ann Fabric and Craft Stores, Target, Best Buy, GAP and JC Penney.

"Given that retail is the largest private sector American employer, retailers support sound policies that spur economic growth and job creation,'' Brian Dodge, spokesman for the Retail Industry Leaders Association, said in a statement. "Later this week, several top retail executives will visit Capitol Hill to meet with lawmakers and discuss pro-growth policies that will benefit both American consumers and job creators."

The border-adjustment tax, outlined in a plan co-authored by Brady and House Speaker Paul Ryan, R-Wis., would potentially lead to price hikes of up to 15% on products ranging from apparel to electronics, according to the National Retail Federation. Proponents say it will raise revenue that can be offset with lower corporate tax rates while spurring job creation in the U.S. While the price increases would likely be particularly tough on lower and middle-income consumers, industry watchers say they'd be necessary if retailers are going to eke out a profit in the face of increased costs.

The House proposal would require U.S. retailers that currently pay taxes only on the profit made from the sale of an imported product to also pay taxes on what it cost to purchase it from abroad. A retailer, for instance, that purchases a pair of jeans from Bangladesh for $10 and sells it in the U.S. for $30 currently pays taxes on just the $20 profit. But under the GOP House proposal, the store chain would have to pay taxes on the full $30.

The NRF has forecast that the tax change would likely lead to clothing and shoe prices spiking roughly 15%, while electronics would potentially cost about 11% more.

If the border tax is enacted, prices would continue to vary among retailers based on factors ranging from cost structure to the source of the items they sell. Some economists believe that a stronger dollar would offset price increases that are passed through to shoppers. Companies could also benefit from the GOP House proposal's recommendation that the corporate tax rate shrink to 20% from the current 35%.

But roughly 30% of products that American consumers don't frequently buy, such as washing machines and dishwashers, come from outside the U.S., according to IHS Markit. The NRF has said that the reduced corporate tax rate would do little to offset the losses that stem from the canceled import tax deduction. And companies with U.S.-based factories will benefit far more than those who are reliant on materials and goods from abroad.

David French, a senior vice president for the NRF, says the proposed tax would "drive up prices paid by American consumers, significantly impact the consumer spending that makes up two-thirds of our nation’s economy and threaten the tens of millions of jobs supported by the retail industry."