Washington — Target Corp. CEO Brian Cornell and Best Buy CEO Hubert Joly joined a half-dozen other retail executives to express “grave concerns” to President Donald Trump and Vice President Mike Pence Wednesday about a proposed border adjustment tax that the retail industry says will increase costs to consumers, according to a source familiar with the closed-door meeting.
The tax, a piece of a larger House Republican tax reform plan, aims to discourage companies from buying or manufacturing products outside the U.S. The border adjustment forces companies to pay taxes on the full purchase price of imported items its sells and not just on profits from those sales. It could add 20 percent to cost of imported inventory, analysts believe, forcing prices up and revenue down.
In a statement Wednesday, Target said the border adjustment tax “will raise prices for American families on everyday essentials. If enacted, ... (it) would have profound implications for our guests and business.”
As they came and went, Cornell and Joly were both tight-lipped about their visits to the White House and Capitol Hill.
Neither man responded to reporters’ questions on the way into the West Wing meeting with Trump. Cornell came to a very brief post-meeting press appearance but did not speak. Joly did not attend the press gathering.
In a lighthearted aside, a video taken as the CEOs introduced themselves showed Trump pausing after Cornell introduced himself from Target.
“Tar-zhay, right?” the president said with a smile.
Still, the business that brought the retail leaders to Washington was serious.
“Anything that raises prices for families is not a good idea for America,” the Target statement said.
The border tax adjustment hits companies like Target and Best Buy very hard because they import so much of their inventory. Analysts say Target is more vulnerable than its major competitor, Wal-Mart, because the retailer relies more on the sales of foreign-made clothing and housewares, while Wal-Mart does a larger business in groceries that are not imported.
But the tax weighs on all retailers who import significantly. That’s why the Retail Industry Leaders Association trade group set up this week’s intervention.
Cornell, Joly, and CEOs Bill Rhodes of AutoZone, Marvin Ellison of J.C. Penney Co., Art Peck of Gap Inc., Stefano Pesina of Walgreen Boots Alliance, Greg Sandfort of Tractor Supply and Jill Soltau of Jo-Ann Fabric and Craft Store headed from the White House to the Capitol for scheduled meetings with heads of the Senate Finance Committee, the House Ways and Means Committee and House Speaker Paul Ryan, R-Wis., who oversaw the comprehensive tax reform proposal.
The move toward a more protectionist economy was one of the president’s main campaign promises. The “America first” theme of his inaugural speech bolstered that goal. The Republican tax reform pushes in the same direction. While adding taxes on the sale of imported inventory, it removes taxes on U.S. exports. It also cuts the U.S. corporate tax rate to keep companies from relocating headquarters to countries with lower tax rates. In theory, the reform plan assumes that a better trade balance and a stronger dollar will offset consumer and business cost increases caused by the border adjustment tax.
But in recent statements Trump has indicated some reservations about the tax. In a tweet Wednesday he called the meeting with the retail CEOs “a great listening session.” He also promised a new tax reform proposal soon: “We’re going to lower the rates very, very substantially for virtually everybody in every category. Including personal and business.”
The unintended consequences of a border adjustment tax could include hits to the bottom lines of publicly traded companies that are big importers, said Luis Resendiz, who has advised international businesses for 20 years at the Minneapolis law firm of Fredrikson & Byron. Paying $12 for the Target T-shirt that used to cost $10 or paying $1,200 for the Best Buy high definition TV that used to cost $1,000 could lead to reduced sales, he said.