Retail industry CEOs who recently met with President Trump spoke in favor of tax reform in general but against the border adjustment feature at the center of the Ryan-Brady tax reform bill developed by in the House of Representatives.
They are missing the forest for the trees by focusing on the narrow impacts of tax changes on their companies rather than the big picture benefits of reform for their customers and the overall economy. Ultimately, a stronger economy with rising incomes and better job creation means more money for families to spend in stores and online. That's what the Brady-Ryan tax plan will mean—a stronger economy—and that's good for retailers, even if they don't see it that way quite yet.
The border adjustment feature in the Brady-Ryan tax proposal sets up a corporate tax system that taxes all sales made within the United States the same regardless of where the company selling something is located or whether the production occurs in the United States or overseas.
The current corporate tax system, in contrast, typically means a lower tax rate for firms that produce overseas and import into the United States. U.S. firms that move production overseas do better than American companies that produce here because they get to put off paying taxes on the profits they make by producing in other countries.
But foreign firms that sell into the U.S. do the best of all, because the U.S. corporate tax rate is higher than other countries' taxes. It is disappointing that companies move jobs and production lines overseas, but the backward incentives in the U.S. tax system make this no surprise.
The Brady-Ryan tax plan will flip the situation. The proposal includes lower tax rates, strengthening U.S. job creation and economic growth, while giving both businesses and American families a simpler tax system. The border adjustment in the proposal addresses the vexing aspects of the U.S. tax code that today lead firms to shift their profits or invert their corporate structure to move their headquarters outside the United States.