Small Businesses Uneasy Over Border-Adjustment Tax Plan
Owners say they may have to raise prices, lay off workers; exporters expect to benefit
Photo: Taylor Glascock for The Wall Street Journal
By Ruth Simon and Richard Rubin
Jan. 29, 2017 12:57 p.m. ET
A proposed overhaul of the U.S. tax code favored by Republicans in the House of Representatives is drawing fire from small-business owners who sell everything from toys to materials used in kitchen cabinets.
Some business owners say they worry that a part of the proposal, known as border adjustment, could force them to raise prices and lay off workers. Others fear it could even put them out of business. The proposal could, however, benefit firms that are exporters or don’t import raw materials or finished products.
Under the plan, imports couldn’t be deducted as a cost of doing business, while exports would be exempted. That could lead to higher tax bills for firms that rely heavily on imports. The proposal is part of a broader tax overhaul that would cut corporate and individual tax rates.
Before his inauguration, then President-elect Donald Trump in a Jan. 13 interview with The Wall Street Journal, criticized the border tax plan as “too complicated,” though he later said the idea was still being discussed. The administration has since moved toward accepting the plan in part by tying it to Mr. Trump’s proposed wall on the U.S.-Mexico border.
“I am expecting disaster if they actually implement this plan,” said Richard Woldenberg, chief executive of Learning Resources Inc. in Vernon Hills, Ill., which employs about 150 people. The company sells rainbow-colored plastic cash registers, kitchen sets and other educational toys, most made in China.
Under a border-adjusted tax, a company that imported $200,000 of foreign made toys, spent $100,000 on domestic costs and sold the toys for $350,000, would only be able to deduct the $100,000 in local costs.
It would then pay taxes—at a proposed lower tax rate of 20%—on $250,000. So its tax bill would be about $50,000.
That same company could currently deduct the costs of imports as well as local expenses, and then pay 35% in taxes on $50,000. That results in a tax bill of about $17,500.
Economists and plan supporters say the dollar will rise to offset the tax change. If that happens, importers would pay less for goods they import, because a stronger dollar would reduce the actual cost of imports, and more in taxes, with their after-tax profits unchanged because of the border adjustment itself.
No one likes to see the loss of jobs because of imports from countries that that offer cheap labor and very little environmental or other regulations that US manufacturers have to pay for.Those who are importing products from abroad could use this as an opportunity to increase their use of domestically made goods in whole or part to help offset the costs of an import tax.ReplyDelete
The import tax will also afford those small manufacturers that have remained committed to making their products in the US even with small margins the opportunity to grow their businesses and increase employment.
Likewise, this will give US consumers the opportunity to find quality American Made products at prices that can compete with those that are imported.
Thanks for the comment, BuyDirectUSA Jim. I certainly have nothing against buying American, but I think most consumers just want to buy the best possible products. Those products may or may not come from the U.S. Think Bordeaux wines or Camembert cheese. As it turns out, our products were never intended to be made here. That's a choice we made because we do not have infinite financial resources and consumers are not indifferent to price. For both reasons, we have chosen to put our resources into receivables, inventory, marketing and, perhaps most pertinently, people. We don't want to own or run a factory, frankly. It's not in our skill set or the best use of our talents.ReplyDelete
Please note that we put a lot of money into the economy of Northern Illinois in the form of payroll. More than $20 million annually. Those are good paying jobs, and the local residents who work here are building better lives for themselves. These jobs are no better or worse morally or ethically than jobs provided by manufacturers in our area (although we believe our jobs are much superior!). It is hard to demonstrate that creating manufacturing jobs at the expense of jobs at our company Learning Resources improves the local economy. I say they don't.
So let's help U.S. manufacturers grow and prosper - but not at the expense of what our team has spent years building. We are not harming anyone and are not doing anything against the nation's interest, or yours. We are an important part of our community. There is no reason we must be the sacrificial lamb for the goal of stimulating U.S. manufacturing.
I would encourage you, and House Republicans, to not think in terms of either/or. We can stimulate U.S. manufacturing, stimulate U.S. exports AND preserve the value and missions of thousands of small businesses which import and add value in their market sectors. Importers are not bad people, greedy people or self-interested people by nature. They are just good business people doing their jobs. Finally, let's not forget where the BAT came from. Congress wanted to end jurisdiction shopping (inversions) by big companies to avoid paying high U.S. taxes. Not small importers. The BAT solution may (or may not) fix that problem but the cost is too high if companies like ours must die. Don't let it happen!
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. grow your business with b2bmap.com exporters directory onlineReplyDelete