Border-Adjustment Tax on Table as Retailers Meet Trump

Border-adjustment tax is one of the key discussion points

Author: Andria Cheng

February 16, 2017

In the parade of different industry leaders who have traveled to Washington, DC to meet with President Donald Trump, it was retail CEOs’ turn to take the spotlight on Wednesday. 

In the hourlong meeting, heads of eight retailers, including Target CEO Brian Cornell, Best Buy’s Hubert Joly, Gap’s Art Peck and JCPenney’s Marvin Ellison, talked with Trump about jobs and the industry’s impact on the broader economy, according to Retail Industry Leaders Association (RILA), the trade group that organized Wednesday’s meeting. It said the gathering was put together to make sure retailers “have a seat at the table.” 

As expected, one of the key discussion points was border-adjustment tax. This is part of a House-proposed tax reform plan that retailers—an industry that depends heavily on clothing, electronics and other imports—have said will crimp profits and force them to raise prices, hurting consumers. 

Supporters in the House say the tax change would spur manufacturing—and manufacturing jobs—in the US. 

The proposal has divided corporate America: major US exporters from Boeing to General Electric have reportedly formed a coalition supporting the plan. 

National Retail Federation (NRF), the industry’s largest trade group, has estimated that the tax would cost the average US family $1,700 in the first year alone if enacted. Citing US Department of Commerce Bureau of Economic Analysis (BEA) data, NRF estimated consumers could expect to see an increase of over $350 per year for clothing, for example, in the scenario of a 20% destination-based tax on imports. 

“We stressed the importance of taking a thoughtful approach to tax reform for both individuals and corporations,” said Bill Rhodes, RILA chairman, CEO of AutoZone and one of the eight retail executives at Wednesday’s meeting. He described the meeting as “positive and productive.” 

The border-adjustment tax “is a priority issue for Target because it will raise prices for American families on everyday essentials,” the No. 2 US discounter said in an emailed statement. “If enacted, the House proposal would have profound implications for our guests and business. Anything that raises prices for families is not a good idea for America.” 

Other CEOs at the meeting included those from Tractor Supply, Walgreens Boots Alliance and Jo-Ann Fabric and Craft Stores. 

In short opening remarks that were broadcast publicly, Trump didn’t mention the border-adjustment tax. “Tax reform is one of the best opportunities to influence our economy,” he said, and promised that an overhaul is coming soon. 

Trump promised to “provide tax relief” and “simplify the tax code,” adding that he will “remove regulation that cost jobs.” (On the border-adjustment tax, Trump had criticized it as overly complicated even though his aides reportedly have said since then that he was warming to it.) 

At a time when retailers from Macy’s to Sears have released store-closing plans and many physical retailers are struggling to reinvent themselves to respond to growing online competition and shifting consumer behavior, Trump also made one of his signature pitches: “We want jobs. We want you to expand your stores.” 

Whether by design or coincidence, a number of retailers, including Walmart and Amazon, have announced plans this year to add jobs in the US. The industry is the largest private sector employer in the US, supporting 42 million jobs, NRF, citing a PricewaterhouseCoopers study, has said.