There is a potential game-changing proposal under consideration in Congress that would set the business community on its ear. According to multiple sources, the proposal would disallow U.S. companies from deducting the cost of the products they import from their taxes.
The proposal is being considered in conjunction with other tax reforms. It is part of a number of options being considered as Congressional Republicans try to define what the Border Adjustability Tax, or BAT, actually means.
Will it subsidize exports? Will it tax imports? Will it do both? No one knows what the final BAT proposal will be. It’s too early to tell.
“There are numerous proposals being floated,” says Roy Littlefield, executive vice president of the Tire Industry Association. “The bottom line is that (President) Trump is pushing to build the wall, to build up the military, to invest $1 trillion in the infrastructure, and to cut personal and business taxes. And nobody knows yet what will happen to Obamacare, social security or Medicare.
“It does not add up, and Republican leadership in Congress does not want to increase the nation’s debt. So border adjustment options are being considered. It is in the current Republican tax plan.
“If the business community does not give a little on this, we might lose the estate tax or some of the tax cuts,” says Littlefield. “But we are early in the game and we have not had to finalize a position yet.”
The Auto Care Association, for one, is concerned.
“The BAT, which subjects imports to essentially a new tariff by denying U.S. companies the ability to deduct import costs from taxable income, would be damaging to the auto care industry,” says the association. It lists two major reasons why the proposal should be scuttled before it gains momentum.
1. “Companies that rely on imports for a large portion of their product lines would see their taxes skyrocket. For example, a company that imports over 90% of its product would see its effective tax rate rise to at least 300% of its profits, thus putting it out of business.”
2. “The tax would increase prices throughout the supply chain, ultimately impacting the end consumer who is likely to pay more for parts and components.”
“The Border Adjustment Tax is an immediate threat to economic viability of thousands of small, family-owned businesses in the auto care industry,” says Bill Hanvey, CEO and president of the Auto Care Association. “We have a complex supply chain throughout the country that distributes the right auto part to the right place at the right time, so that the American consumer can keep their vehicle on the road.
“The effect of the BAT will rapidly be felt by the consumer, and will bring real, downward pressure on growth, planning and employment in the industry.”
There also are opponents to the proposal in general, and President Trump has reportedly called it too complicated. When all is said and done, it may not even have the cost-of-goods-sold provision in it.
A formal comprehensive tax reform policy is not expected to be released until next year, so there is enough time to let your state and federal congressmen, congresswomen and senators know where you stand on any of their tax proposals before they gain momentum.
What are your thoughts on the matter? Let us know what you think by leaving a comment!
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