GOP’S TAX PLAN COULD HIT WHERE IT HURTS
Retailers and consumers alike could suffer under proposal to scrap deduction on imports
President Trump’s proposal to levy a 20% tax on imports fromMexico isn’t the only plan that could pinch your pocketbook.
A GOP proposal to scrap a tax deduction on imported goods could lead to price increases of as much as 15% on products from jeans to Jeeps, according to projections by a major retail trade association.
The border adjustment tax, outlined in a plan co- written by House Speaker Paul Ryan, RWis., would require U. S. retailers who now 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.
That would likely lead to clothing and shoe prices jumping roughly 15%, and electronics could cost about 11% more, according to forecasts from the National Retail Federation.
Stores say those price increases could be the difference between making money or winding up in the red.
“If you’re a retailer and you’re in the specialty- apparel business ... virtually all of the products that you sell are imported,” says David French, the NRF’s senior vice president for government relations, noting
that retail profitmargins seldom top 3%. “You’re looking at price increases across your product lines at roughly 15%, or you’ll suffer short- term losses.”
There would be variations from retailer to retailer, based on factors including their cost structure and the source of goods. Based on projections by some retail, gas and auto experts, price hikes would be noticeable.
A pair of $ 79 jeans would cost $ 93. A gallon of regular unleaded gas, which had an average price Thursday of $ 2.29, would cost $ 2.59 to $ 2.67. And a new vehicle, which reached the record average price of $ 35,309 in December, would see its sticker price rise to $ 37,609.
Currently, a store chain that buys a pair of jeans from Taiwan for $ 10 and sells it in the U. S. for $ 30 pays taxes on just the $ 20 profit. Under the GOP House proposal, the retailer would have to pay taxes on the full $ 30.
The congressional proposal also recommends lowering the corporate tax rate to 20% from 35%. But French says that would do little to offset the losses that stem from the canceled import tax deduction. “You can’t stay in business if you’re paying $ 2.40 on a $ 2 profit.”
Roughly 30% of such products as refrigerators and washing machines that consumers don’t frequently buy come from abroad, says Chris Christopher Jr., director for U. S. Macro and Global Economics for IHS Markit.
The new import tax might boost revenue, “but in the end, the border tax adjustment is ... not very pro- consumer,” he says. “It’s a tricky thing. ... When you look into details, it’s not good for low- income and middle- income Americans, and that’s where a lot of the support came for Donald Trump.”
But the Tax Foundation, an independent think tank that supports lower taxes, says the proposed tax change will lift the value of the U. S. dollar, allowing prices to stay where they are.
“Supporters and opponents are missing the fact that taxes and subsidies have a direct impact on the supply and demand of goods, which in turn impact their market prices,” wrote Kyle Pomerleau, director of the foundation’s federal projects.
Thomas Cooley, an economics professor at NYU, agrees that a stronger dollar could cushion the fallout. Still, if the proposal takes effect, “there will be winners and losers,” he says.