Say goodbye to affordable clothing if border tax is passed
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House Republicans continue to aggressively push their border adjustment tax (BAT) and, if successful, Americans will soon find it hard to get affordable clothing.

Does a bold statement like that seem incredulous?

It's not.

In general, the House Republican "A Better Way" tax blueprint has many excellent attributes. The problem is that the "pay for" is a direct hit on the apparel, footwear and retail industry. It is also a direct hit on the American consumer.

Sen. Tom CottonTom CottonHouse bill set to reignite debate on warrantless surveillance Republicans jockey for position on immigration The Hill's 12:30 Report MORE (R-Ark.) expressed his concerns about working Americans getting stiffed (yet again) by adding tax to consumer items: "Why would we make the stuff they get at Wal-Mart more expensive?" he asked.

Will people stop shopping for clothes and go naked? That's unlikely. But, as prices rise (perhaps by 20 percent or more), consumers will buy less — and several retailers will probably go bust in the process.

If anyone thinks that retail is healthy, think again. If anyone thinks it's a good idea to kick an industry when its down, speak up now or forever hold your retail peace. If BAT passes, there will be fewer retail stores to clothe you, and fewer name brands to satisfy your fashion prerogatives.

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In the last few months, the retail community has seen a string of bankruptcies including, among them Pacific Sunwear, American Apparel, Eastern Mountain Sports, Bob's Stores, Sports Chalet, Quiksilver, Aeropostale and Golfsmith.

 

In addition, Limited Stores, Wet Seal and Sports Authority closed their doors for good. And JCPenney plans to close up to 140 stores, Abercrombie will close 60, Sears and Kmart 150, Macy's 68, Golfsmith 59, and Crocs 160.

Any legislator who thinks retailers need another tax or price hike is not in tune with the current economic environment. Sure, we may have been a tad over-retailed, and sure, e-commerce has been nibbling away at brick and mortar store, but higher retail prices from a BAT tax?

Really?

Many in Washington have gone to great lengths explaining what the tax is meant to do. The problem is that 98 percent of all apparel and footwear is already imported, and the Republicans' BAT only targets imports.

Wearable products won't get a second chance, especially after your accountant reveals that the cost of goods sold (if imported) is no longer deductible. Lowering the tax rate from 35 percent to 20 percent while eliminating deductibility for cost of goods sold is like Siegfried and Roy making an elephant disappear while creating an amazing illusion. Taxing a larger amount at a lower rate doesn't help anyone, not even the elephant that was on the stage (he was also imported, by the way).

Retailers will be forced to raise prices, and consumers will be forced to pay more, give up shopping, go naked or just get angry.

With logic staring legislators in the face, why would anyone be concerned that BAT could happen?

Well, Congress works in mysterious ways, and the BAT has a chance to make our apparel and footwear industry the sacrificial lamb of 2017, as revenue for the plan must come from somewhere, and we are the likely target.

Right now, it appears that the House of Representatives has the votes and the power to pass this tax. To his credit, President Trump hasn't taken sides on the issue. He did comment in The Wall Street Journal that he had an issue with the word "adjustment" as he is never sure what someone is "adjusting." "Anytime I hear border adjustment," he said, "I don't love it. Because usually it means we're going to get adjusted into a bad deal."

However, the president could side with the House of Representatives, and then all eyes will be fixated on the Senate.

Likely, the Senate will reject the House bill and submit its own version — and that's a good situation. But, with conflicting legislation, the two groups end up in "conference" where they try to reconcile their differences behind closed doors.

What will happen in that room is anybody's guess.

The core problem is a more than a $1 trillion revenue shortfall occurs as the tax rate is lowered from approximately 35 percent to 20 percent — and that shortfall must be made up or the legislation becomes dysfunctional. Reconcilers may just decide to add the tax to wholesale or retail, and that action will certainly initiate a national consumer-centric disaster.

It will put us back on the stage with Siegfried and Roy, along with the disappearing imported elephant.

So, no doom and gloom. Just understand that everyone wants tax reform, and the House Republicans have the power to make this happen — or mess it up.

If BAT passes, you will be paying more for your imported consumables. You will buy less, and you will have fewer places to shop. And, those are just the facts!

The economic theory that the dollar will adjust (and all will be OK) is just absolute fiction.

Rick Helfenbein is president and CEO of the American Apparel & Footwear Association and is a strong advocate for a robust U.S. trade agenda and for "Made in USA." He lectures frequently on the subjects of politics and international trade. Follow him on Twitter @rhelfen.


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