i3 | February 23, 2017

"Border Adjustment Tax" Will Hurt Consumers, Retailers & CT Industry

Steve Smith

Whenever politicians begin to talk about “tax cuts” or “tax reform” it reminds me of three-card monte. That’s a game that was played in many of New York City’s distressed neighborhoods back when the city had its problems in the mid-1970s.

Three-card monte is really a con game where a person who loses money - the “mark” - is deceived into betting money that he or she can guess what the money card is among three face-down playing cards. A “shill” – who works for the “dealer” – pretends to help the mark cheat the dealer, but the mark always loses.

Everyone loves the terms “tax cuts” or “tax reform” - but you’ve always got to read the fine print. The proposed Border Adjustment Tax (BAT) is part of this year’s effort at cutting taxes and is in the fine print. Such proposals in tax law always seems to help some income brackets and industries, and hurt others. While everything today is political all I will say is that if BAT is signed into law it is obvious who the “marks” will be in this tale.

The BAT proposal could create a $1 trillion tax, according to the National Retail Federation (NRF). In a statement on BAT, the NRF said it is a consumption tax and would create “a new 20 percent tax on imports.” That would boost prices to pay the tax and cost “the average family as much as $1,700 a year.” NRF makes the point that the “vast majority of imported items affected are not manufactured in the U.S., so there would be no opportunity to substitute American-made inventory.”

Few, if anyone, especially supporters of President Trump or Republicans in Congress, voted in November to increase their taxes by $1,700 annually when they want to buy – in the case of the CT industry – 4K TVs, PCs, tablets, smartphones, headphones and so many other products everyone relies on for entertainment, education, communication and work.

For decades economists have studied proposed consumption taxes of this type. The majority have come to the conclusion that they usually hurt consumers the most – typical every day working families. If BAT becomes law prices on retail goods of all types will go up in the double-digit range and sales will drop severely. In the CT industry’s case it may drive many consumer technology retailers, many of whom are privately local or regional dealers, out of business. Small businesses in the U.S., which include local and regional dealers, traditionally create more jobs than major corporations on an annual basis.

Based on the cost of manufacturing here versus overseas, the U.S. won’t become a manufacturing hub creating quality jobs making consumer technology now, or in the foreseeable future. That opportunity ended years ago. When General Electric bought RCA back in the mid-1980s yours truly attended a press conference on the deal the next day. Then GE chairman Jack Welch was asked the day after the deal was announced if VCR manufacturing would return to the U.S. Welch said, “That ship sailed a long time ago.”

And there is another point that has been made by the CT industry for years. Namely, what is a U.S. product? Many companies design products here, manufacture some or all of the components overseas, and some are assembled here. The products are designed by U.S. companies based here. But the components are manufactured overseas. Will the finished products be considered U.S. or imported items under the BAT proposal?

Reading about BAT confirms a feeling I’ve had about some of our elected representatives in Washington for some time. In covering the industry since 1982 I have heard, read, interviewed and met plenty of our elected officials, and heard them volunteer opinions about the industry and retailing. Suffice it to say that the knowledge of many on either subject is somewhat lacking – and I’m being diplomatic.

To help educate Washington and the public about BAT more than 100 businesses and trade groups formed a new coalition to stop it called the Americans for Affordable Products (AAP) earlier this month. The group will run a national campaign to explain to consumers and lawmakers that BAT is a policy which results in higher costs for everyday items that hurts everyone. AAP said that the BAT proposal, if signed into law, “will significantly hurt American consumers and the nation’s largest employers by increasing the cost of everyday products.”

The Consumer Technology Association (CTA) is part of the group and Gary Shapiro, president and CEO said in a statement, “While well intended, a proposed [BAT] could increase prices on a wide range of basic consumer goods, hitting the pocketbooks of middle class Americans. We urge policymakers to incentivize U.S. manufacturing in ways that don’t hurt the hundreds of thousands of American businesses who employ millions of American workers.”

Even though this is a hyper-political era, the nation’s economy as a whole is stronger than it was in the 1970s. Let’s hope that common sense and cooler heads prevail. And if you are a concerned retailer, manufacturer or consumer, check out AAP to find out the latest developments on this highly important issue.

January/February 2017 i3 Cover Issue

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