Border tax could be death sentence for fashion

With the turmoil in Washington of late, it’s hard to decide exactly which issue you are most upset about. Just as you get really angry about one problem, another one tweets its way into your head.

For the retail, apparel, footwear, handbag and accessories trade, there is nothing more fearful right now than the border adjustment tax (BAT) provision — a difficult component of a generally excellent idea that has been put forward by House Republicans as part of their “A Better Way” blueprint for lowering America’s corporate taxes.

In a fashion industry that survives by importing 98 percent of its products, this proposed new BAT tax plan is potentially a death sentence.

The creators of the blueprint clearly state that this is a tax policy, and not a trade policy.

But wait a minute — that’s just not true. If the government is planning to tax imports, then this is trade policy, and affects our fashion industry, because we live in the world of trade while managing very complex supply chains.

House Republicans, feeling wounded by early criticism of the plan, are now trying to redirect that conversation and say their concept is better described as a “destination” tax.

Really?

{mosads}If my destination is Fiji, and they want to tax me to go there, I will probably stay home and that’s exactly want they want me to do. Their idea is for us to stay in the U.S. and buy here, and next summer plan for Coney Island and hot dogs, never making that reservation for Fiji and its tropical beaches.

This “destination” ideology is simply not based in reality. We live here, we sleep here, we eat here and we buy our clothes here. Under their new plan, our clothes are going to be much more expensive, and many of us will lose our jobs because this proposed tax structure will put our companies out of business.

Senior Republicans have put a lot of thought and effort behind this plan and, on the whole, they should be commended. Their big idea for the American people is to reduce corporate taxes so that business will remain here and we can start to grow our anemic gross domestic product once again.

The problem is that cutting tax revenue in one area means that you have to add it back in another. This BAT tax a core component of their plan.

For some industries this might work; for the fashion world, it does not.

Since the cost to manufacture imported apparel items (including many that use inputs made in the U.S.) would no longer be eligible for deduction on corporate tax returns, the overall amount being taxed would end up being significantly higher (even if one is taxed at the lower rate).

In fact, taxes will probably be higher than profits, leaving importers with only the choice of shutting down or raising their selling prices. If they raise their prices, customers will buy less, and the downward spiral will begin.

While House Republicans are definitely not out to hurt any individual sector of the economy, they fail to realize that our fashion sector gets punished more than most, given that we import 98 percent of our products.

Since “Made in USA” (or exported items) wouldn’t be taxed, we all will need to look back to see if we can possibly reinvent the apparel wheel. Students of U.S. apparel history will tell you that 20 years ago, 46 percent of apparel was Made in the USA; 10 years ago, the number was 10 percent; now, the number is 2.7 percent.

It’s just not realistic to think that we can go back to go forward. This isn’t a game of back-to-the-future.

Life is a journey and the BAT tax is described as a “destination.” We all need sit down with our legislators to find the a real “better way” to lower our corporate tax rates without sounding a death knell for our fashion industry.

If we can’t find a way to compromise, then you might as well head out to Coney Island so you can lounge on the sand and watch our fashion dreams as they drift out to sea.

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.

The views of contributors are their own and not the views of The Hill.