Michigan retailers: GOP border tax will hike prices

Jonathan Oosting
Detroit News Lansing Bureau

While Congress is focused this week on plans to overhaul the federal health care system, Michigan retailers are worried about what’s next.

The Michigan Retailers Association on Thursday blasted a prospective “border adjustment” import tax backed by U.S. House Speaker Paul Ryan, who wants it to be part of a major tax reform package that the House and Senate hope to take up later this year.

The border tax is a “dangerous proposal” that would drive up prices on imported products for both consumers and businesses, said Amy Drumm, the retailers association’s vice president of government affairs.

“This consumer tax will hit Americans at the grocery store, when they do a home repair and when they buy clothes and shoes for their kids to wear to school,” she said.

Drumm spoke at a press conference announcing a new state chapter of the “Americans for Affordable Products” coalition. Michigan retail giant Meijer Inc. and Wolverine Worldwide are both members of the national group.

Ryan’s “better way” blueprint for tax reform calls for border-based adjustments to tax imported products but exempts exports, which he says would encourage domestic production and job growth, discourage companies from moving work to other countries and create incentives against offshoring.

Most U.S. trade partners raise significant revenue through value-added taxes that include border adjustability, Ryan argues. Exports from the United States “implicitly” bear the cost of the personal income tax, while imports do not, creating a trade imbalance, he says.

“This amounts to a self-imposed unilateral penalty on U.S. exports and a self-imposed unilateral subsidy for U.S. imports,” says the blueprint Ryan released in June of 2016.

The border adjustment tax would reportedly generate $10 billion in new revenue over a decade, making it a key element of the Ryan plan because it would help offset estimated revenue losses from large proposed cuts to corporate and income tax rates.

But critics say the costs will ultimately be borne by retailers and passed along to consumers. The border adjustment tax could cost Michigan families an estimated $1,700 a year, Drumm said.

The concept has divided the business community, and some congressional Republicans have already spoken out against the idea.

President Donald Trump has not explicitly endorsed the border adjustment tax but in February told Reuters it “could lead to a lot more jobs in the United States.”

Trump has repeatedly threatened to impose taxes or tariffs on companies that move jobs abroad and import products back into the United States, including Detroit-area automakers.

While House Republicans have not formally introduced a tax plan or border adjustment proposal, “they’re throwing out a little bit of a trial balloon, and we’re trying to shoot that balloon down before it takes off,” said Pete Lund, state director for the Michigan chapter of Americans for Prosperity. The conservative group supports other elements of the developing tax reform plan.

“The thought might be in the short-term it helps create jobs, but we’ve actually seen that putting barriers like this up hurts jobs, and more importantly it hurts people who have jobs and their ability to buy things,” Lund said.

Retail is a “penny business” with razor-thin margins, Drumm said, suggesting the border adjustment tax would strain businesses or force them to raise prices.

“We all agree we’d love to see more Michigan made products in stores … but a border adjustment tax will not guarantee that American companies will start making products that currently can only be imported,” she said. “It will only guarantee that prices for these products will increase.”