Business Owners Tout Tax Reform but Some Oppose Border-Adjustment Tax

Target CEO says tax proposal would increase their tax rate to 75 percent

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May 24, 2017

Business owners touted the benefits of tax reform, saying that it would spur investment, create jobs, and grow the American economy. But some criticized the proposed border-adjustment tax included in the Republican tax reform blueprint.

The House Republicans introduced their tax reform blueprint,"A Better Way," last year. The plan proposes a border-adjustment tax of 20 percent on all goods imported in the United States.

At a House Ways and Means hearing today, business leaders told lawmakers that they support an overhaul of the tax code, but they do not support the border-adjustment tax.

Brian Cornell, the board chairman and CEO of Target, said the high tax rate of 35 percent on their business has motivated them to support tax reform that brings the rate down. However, the border-adjustment tax would increase that rate to 75 percent, since the tax would raise the prices of everyday goods the company sells.

"We've concluded that the new border-adjustment tax would undermine the pro-growth principles in the blueprint," said Cornell. "More than 500 companies and associations feel the same way."

"[Eighty-five] percent of Americans shop at Target every year," he said. "We believe this new tax would hit those families hard. Raising prices on everyday essentials by up to 20 percent."

Cornell said that the prices for basic goods needed by everyday American families—such as groceries, medicine, back-to-school clothes, and gas—would all increase, which would be a budget breaker for many people.

"Under the new border-adjustment tax, our rate would more than double, from 35 percent to 75 percent," Cornell said. "I can't sign up for a tax plan that would stick American families with the bill or a plan that would double our tax rate."

William Simon, former president and CEO of Walmart, was also cautious about the border-adjustment tax but concluded that it should be considered.

"Simply applying a 20 percent tax on day one to those products would have a serious impact on the industry and the consumer," Simon said. "If you move forward with a border adjustment, I would recommend considering a long implementation period with a phase-in of the tax impact."

"Our current tax system is not serving any of us well," he said. "But until we substantially change the pieces, the puzzle will continue to be assembled in a way that inhibits the development of our manufacturing base."

"I have weighed the considerable challenges this proposal presents to retail with the significant benefits it will deliver to the economy as a whole and have concluded that properly implemented, it is in the best interest of our country for this to be considered," he said.

Juan Luciano, president and CEO of Archer Daniels Midland Company, an agricultural processor, criticized the current tax system, saying it makes it difficult for them to compete globally. However, he supported the proposed border-adjustment tax.

"U.S.-based global agricultural companies like ADM compete with well-capitalized, non-U.S. companies," Luciano said. "These companies often enjoy tax systems with lower rates and border adjustments that give them a competitive advantage."

"This combination puts U.S. companies at a distinct and significant competitive disadvantage. We can have the best engineering, the best business plan, the best customer service, and the most efficient operations, and still be challenged to compete with tax-advantaged non-U.S. firms," he said. "We have strengths we can’t realize and potential we can’t fulfill."

Luciano said that the border-adjustment tax would eliminate tax disparities on exports and would level the playing field between America's tax system and the value-added tax systems compared with the rest of the world.

An economist who testified at the hearing disagreed and said the border-adjustment tax could cause negative shocks to import industries.

"American workers could be hurt by large shocks to industries that use imports intensively, including of course the retail sector, which now employs 1 in 10 American workers," said Kimberly Clausing, a professor of economics at Reed College.

Published under: Tax Reform