How would consumers be affected by a Border Adjustment Tax?
Despite division in Washington, D.C., there is a broad consensus that comprehensive tax reform will simplify business processes and unleash American innovation. Our representatives are currently assessing proposals and policies that will achieve this goal: to help small businesses and families keep their hard-earned money in their communities, where they can determine how best to spend it.
Unfortunately, not every proposed policy meets this standard.
Five years ago the Tax Foundation ranked North Carolina 44th in business tax climate. After implementing consecutive session legislative tax reforms that flattened and significantly lowered the corporate income tax as well as cut the personal income tax rates from well over 10% to barely over 5%, North Carolina now ranks 11th. This is the fastest climb ever achieved by a state. These actions reversed $2B annual budget deficits to create half-billion-dollar surpluses.
Congressional leadership continues to insist that any tax reform bill include a Border Adjustment Tax (BAT), which will add a 20 percent tax on all imports coming into the U.S., while excluding exports. This is essentially a national sales tax on all consumers – here in North Carolina and across the nation.
This tax would be especially devastating for our state, as many of our businesses rely on imports to manufacture products or resell goods. In 2016 alone, North Carolina imported goods worth over $47 billion, contributing to our state’s burgeoning manufacturing and retail industries. In fact, retail is North Carolina’s largest private employer. It is also the sector that would be hurt the most by a BAT.
According to the National Retail Federation, more than 60 retail brands have headquarters or distribution centers across the state, and 30 of North Carolina’s top employers are retailers. North Carolinians shop at these retailers every day, including Family Dollar, Food Lion, Ashworth’s Clothing, and Kimbrell’s Furniture.
By paying a 20 percent tax on imported goods, North Carolina businesses would be forced to shift those costs onto consumers, raising the price of consumer goods such as clothing and food. The National Retail Federation estimates that consumer prices will rise an estimated 15 percent. Even though agriculture is North Carolina’s leading industry, generating over $90 billion annually, if the BAT is implemented, consumers could see cost increases during their next trip to Food Lion on fresh produce and other items. The National Grocers Association noted that “as much as 30 percent to 40 percent of fresh produce items sold in stores are imported into the United States at some point throughout the year. Instituting a ‘food tax’ on consumers for imported products is simply not a workable solution.”
Businesses that currently thrive would lose customers or could cut jobs to offset profit losses and increased costs. Why should a tax reform policy hurt consumers and cost jobs? Why punish successful businesses and hardworking families?
Proponents argue that a BAT will revitalize American manufacturing, creating jobs while generating revenue for the federal government. What they neglect to mention is that this revenue is created on the backs of American businesses and families, in an effort to raise one trillion dollars for policymakers’ other projects. North Carolina depends on the hard-working individuals who have founded and grown innovative businesses. To preserve this successful legacy and protect our state’s economy, our policymakers should reject any tax reform proposal that includes a Border Adjustment Tax, and instead focus on reducing federal spending and lowering corporate and individual tax rates.
Our leaders should remove obstacles for businesses and reward success, not punish it. This is a once in a generation moment, and the people of North Carolina are looking to our representatives to ensure any tax reform proposal meets that standard.
Jeff Tarte represents District 41 in the North Carolina Senate.
A version of this op-ed appeared in the July 8, 2017 edition of The Charlotte Observer.