A divide is emerging among American companies when it comes to the Trump administration’s proposed border adjustment tax. For some, the tax—which would shift taxation from where goods are produced to where goods are sold—could bode poorly, since prices for consumers would go up, potentially decreasing demand for their products. But for others, there may be a benefit, as the tax could increase demand for American-made goods, boosting sales and jobs. On both sides, companies have potentially billions of dollars at stake.
Lobbyists in the retail, energy, and auto industries have already started a campaign against the policy called Americans for Affordable Products, and the very name highlights their main argument. The group calls the border adjustment tax “outrageous,” and argues that it is a trillion-dollar tax break for some corporations that increases the price of clothing, food, and gas for American consumers. Over 100 companies have joined the opposition, including Best Buy, Macy’s, Nike, and Walmart. Brett Biggs, the CFO of Walmart, spoke out against the border adjustment tax on an earnings call this week, saying that any policy that might raise prices for their customers is a serious concern for the company.
But companies that focus on exporting American-made goods and services believe they stand to benefit from the border adjustment tax. Earlier this week, 16 CEOs from export-focused companies penned a letter to Congress supporting the new policy, which they say is “pro-growth.” The current system, they argue, provides “unfair advantage for foreign-based companies at the expense of U.S. jobs and economic growth.” The CEOs are part of the American Made Coalition, a group of businesses that includes Boeing, General Electric, Honeywell, Johnson & Johnson, and Pfizer.
Arguments that suggest the border adjustment will result in winners and losers stand in opposition to how economists and tax-policy analysts describe the policy’s actual operation. The Tax Foundation, an independent research organization on tax policy, has stated that a border adjustment is trade neutral, and that characterizing it as a tax increase on consumers is “incorrect” because they don’t anticipate an increase in prices. While at first glance, it might seem like it would raise taxes on companies that import products, the border adjustment tax shouldn’t benefit either set of companies in the long run.
Theoretically, a border adjustment tax would shift exchange rates in a way that prevents importers and exporters from disproportionately benefitting. Once the border adjustment tax goes into effect, the demand for U.S. exports is expected to rise. But that would, in theory, result in a stronger U.S. dollar. A stronger dollar would make it more expensive to buy U.S. exports. At the same time, a strong dollar would mean greater purchasing power, which would give Americans the ability to buy imported goods without feeling pinched.
It may seem silly, then, that companies are battling over perceived gains or losses that won’t manifest. But there are some concerns that the currency adjustment won’t end up offsetting the tax, or that the shifts won’t happen fast enough. The Economist estimates that the U.S. dollar would have to rise 25 percent to offset the proposed border adjustment tax. And that rise in currency has the potential be disruptive in other ways, including by causing inflation and violating the rules of the World Trade Organization. Republicans might be willing to take that chance (though the policy is currently experiencing strong opposition) if the tax reduced incentive for firms to hoard profits overseas or perform corporate inversions. Despite theoretical ideas of how this policy would work, companies are committed to prepare for a different scenario, in which some stand to gain while many others lose.
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