Industry trade groups and business leaders aren’t happy with President Joe Biden’s budget plan for fiscal 2024—and the corporate tax hikes that could come with it.
Biden’s proposal aims at cooling inflation and steadying the economy after 12 months of turbulence. The plan calls for a 28 percent corporate tax rate, a 7-percent increase from the current rate of 21 percent.
“Corporations received an enormous tax break in 2017, cutting effective U.S. tax rates for U.S. corporations to a low of less than 10 percent,” the administration wrote. The proposed rate change “is complemented by other proposals to incentivize job creation and investment in the United States and ensure large corporations pay their fair share,” according to the White House.
A rate hike could significantly affect the fashion sector, according to National Retail Federation (NRF) senior vice president of government relations David French. “President Biden’s proposed tax increase would make the U.S. corporate tax rate among the highest in the industrialized world,” he said, which “would disproportionately impact retailers and their employees.”
“Before passage of the Tax Cuts and Jobs Act of 2017, retailers paid one of the highest effective tax rates of any industry and benefited from few of the tax incentives, deductions and credits in the Internal Revenue Code,” he added. “Ratcheting the rate back up would result in a loss of retail jobs and the closing of stores, and would undermine retailers’ ability to invest in expanded e-commerce capabilities.”
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What’s more, a Federal Reserve Board study revealed that such a rate increase would be “uniformly” harmful to U.S. workers, and could cost the average family thousands of dollars in annual wages. “Businesses and consumers are already facing persistently high inflation and a slowing economy,” French said. “Using higher taxes on business to fund the president’s budget and reduce the deficit would force all businesses—not just retailers—to increase prices for their products and would further drive inflation.”
Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA), said the budget plan is simply the president’s “opening salvo in negotiations with Congress.” And with a Republican-controlled House and the Senate only narrowly controlled by Democrats, “this proposal will never see the light of day.”
“That said, it’s safe to say any increase in the corporate tax rate takes spending capital out of the hands of our companies and will stunt hiring, capital expenditures, and more competitive consumer pricing,” among other impacts, Priest said. A longtime proponent of eliminating tariffs on footwear imported from overseas, he said the sector pay a record $4.5 billion in duties last year.
“Using our experience with increased duties as a proxy, it’s safe to say any increase in any sort of tax our companies pay will stifle economic growth,” Priest said. “In layman’s terms, bad idea.”
A rate hike could problematic for small business trying to produce domestically, according to FutureStitch founder and CEO Taylor Shupe. The sockmaker, which runs most of its business out of a 280,000-square-foot vertical knitwear factory in China, opened its first U.S. manufacturing facility in Oceanside, Calif., last year, to create jobs for formerly incarcerated women.
Shupe and his partners advocate for supply chain diversification and reshoring. As they and others look to scale domestic business, America’s ability to be “competitive with taxes is very important,” he said. Rate hikes aren’t the only tool the administration could use to curb inflation, and an increase could stifle a small company’s ability to grow, he added. “It could destroy a lot of jobs and hurt a lot of businesses, and I think the main focus of America should be small business entrepreneurship,” Shupe said.
With well-established and profitable offshore operations, Shupe said paying higher taxes while funding the growth of FutureStitch in California would be a tough pill to swallow. “I’d be paying additional to the U.S., so where would I be incented to keep the money?” he said. “Of course, somewhere else. And that’s very problematic.”