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Whose Tax Is It Anyway?

In a recent TV interview, President Donald Trump showed financial acumen and gave us hope that the administration’s new proposed tax plan might have a solution that works for everyone. He used the word “reciprocal” in relation to our international trading partners, and that’s a word (if handled properly) we all might like.

The president’s remarks stand in contrast with the original idea of a Border Adjustability Tax, which is a job killer for the apparel, footwear and travel goods industries. The BAT disallows the ability to deduct our costs of goods sold, which doesn’t work because 98 percent of all apparel and footwear is made outside the United States. Targeting our imports for additional taxation won’t bring Cambodia to Brooklyn, but it will result in lost American jobs and higher prices for everyone.

Our industry currently contributes $380 billion in annual retail sales and supports more than four million U.S. jobs. But without that COGS deduction, those numbers drop fast. The actual border becomes an imaginary wall between you and your accountant when you suddenly learn that your total tax bill will go up because you are being taxed more, albeit at a lower rate. With BAT, we would ultimately see taxes in our industry higher than profits, which leaves businesses with the choice of shutting down or raising consumer prices. Basic economics indicates that as retail prices go up, sales go down. Expenses will need to be cut and ultimately we will lose jobs, jobs, jobs.

Trump’s use of the word “reciprocal” indicates that there is a plan to “do unto others as they would do unto us.” It allows us to tackle unfair trade, without taxing the fair trade. In the world of reciprocal, the unfairness might get evened out, and that’s a much better way to promote exports than trying to add a BAT to imports (just because they’re imports).

In fact, our apparel and footwear industry is already heavily taxed in the form of import tariffs. We currently pay about $14 billion in tariffs annually. Adding a BAT on top of that would easily equate to double taxation for us and higher prices for consumers at every cash register in America. Raising federal revenue by adding cost to the consumer is unconscionable, but leveling the playing field with “reciprocal” trade deals for unfairly treated products does make sense.

Everyone likes the idea of pro-growth tax reform, but we can’t get there if we raises taxes in one area so we can lower taxes in another. Moreover, we all must remember that two-thirds of the U.S. economy is driven by consumer spending. If the House disrupts that spending power (to pay for lost revenue from these tax cuts), just watch what happens to our economy as retail tanks and America sinks slowly into recession.

So, whose tax is it anyway? With the tax train now seemingly affixed to the Trump train, this may allow for a better solution than having consumers foot the bill for corporate tax reform. Certainly, at this point, reciprocal seems like an idea worth pursuing and might be the real path to “a better way” forward for the American employer, the American worker and the American consumer.

 

Rick Helfenbein is president and CEO of the American Apparel & Footwear Association and is a strong advocate for a robust U.S. trade agenda and for “Made in USA.”

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