A controversial federal tax plan that the promotional products industry’s two largest suppliers have called possibly “the greatest threat to our industry in a generation” might be headed for the scrap heap. While the so-called border adjustment tax remains on the table in Washington, D.C., opposition to the proposed reform is mounting inside the Beltway and beyond, diminishing the likelihood that Congress will enact it, analysts say.
“The hard reality is the border tax is on life support, and given the imperative of 51 senators and 218 House members and one president, I think we need to look for other options,” said Senate Majority Whip John Cornyn, a Republican from Texas. Greg Valliere, chief global strategist with Horizon Investment, expressed similar sentiments recently to CNBC, saying the chances of the border adjustment tax becoming a reality appear to be flagging after President Donald Trump met last week with retail industry leaders who oppose the levy. “I wouldn't call it dead, but I would say it's on life support," Valliere said.
In effect, the border adjustment tax would result in higher taxes on imported products sold in the United States. Championed by House Speaker Paul Ryan and other House Republicans, proponents believe the import levy would lead to revenue generation that would allow Washington to slash the corporate tax rate, dropping it from the current 35% to 20%.
Nonetheless, the promo industry’s top two largest suppliers by revenue as ranked by Counselor say that the tax, if imposed, would lead to “devastating” consequences in the industry and without. Normally competitors, SanMar (asi/84863) and alphabroder (asi/34063) joined forces to email a plea to the industry last Friday, urging all to contact local Congress members to voice opposition to the border adjustment tax.
“The reality is that this tax will disrupt global business, cause job losses at American companies relying on imports and lead to significant increases in prices on a wide variety of consumer goods, including the products your business relies on,” read the suppliers’ letter, which added that 95% of a “typical” industry reseller’s current apparel offerings would be subject to “substantial price increases” if the levy were imposed.
Proponents of the border adjustment tax believe the lighter corporate tax it could help allow will stimulate economic growth domestically and bring jobs back to the U.S. Manufacturers that focus on exports are especially keen for the tax reform plan to take effect, as it exempts domestically produced products that are sent out to be sold abroad from tax.
Still, SanMar and alphabroder say the border adjustment tax unfairly penalizes industries like the promo business that rely on imports. “Our industry will be asked to fund tax reform that will be enjoyed by other companies,” the suppliers said in their letter, which further read: “While we do not want to take anything away from Made in USA products or the industries that produce goods in America, the manufacturing and labor base of the apparel industry, like many others, is largely absent from this country and has been for decades. It is simply impractical and unrealistic to assume that such a large, across-the-board punitive tax on imports will somehow bring garment factories and their workers back to the United States.”
Certainly, promotional product suppliers aren’t alone in formally opposing the border adjustment tax. Americans For Prosperity, a conservative advocacy group, is waging a grassroots campaign against the proposed levy. Similarly, a formal coalition – Americans For Affordable Products – has formed to fight against the imposition of the tax. The border adjustment levy “might be,” SanMar and alphabroder said in their letter, “the greatest threat to our industry in a generation.”