Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Controversial Tax Bill Wins Retail Support but Could Raise WTO Ire

Join Theory, Google, H&M, McKinsey, Foot Locker, Lafayette 148, LL Bean, the Retail Prophet and more at Sourcing Journal’s Virtual Sourcing Summit, R/Evolution: Overhauling Fashion’s Outmoded Supply Chain, Oct 14 & 15.

Retailers praised passage of the most sweeping change in U.S. tax laws since 1986 as a job-creating measure that would make them more competitive on the world stage, but critics of the legislation deride it as being too tilted toward high-income households, and are calling it a long-term threat to the nation’s debt and general economic well-being.

The House and Senate passed the Tax Cuts and Jobs Act with thin, partisan votes and will now send it to President Trump to sign. It will be his first piece of major legislation.

David French, senior vice president for government relations at the National Retail Federation, said in a letter to members of Congress, “This legislation represents long-overdue reform of our nation’s tax laws, driving economic growth that will help our retail businesses and our customers. The United States has the highest corporate income tax rate in the industrialized world, which causes U.S. companies to move investment out of the country and is a disincentive for foreign companies to make larger investments here. Reducing the corporate rate will help attract investment to the United States, which will help increase wages and increase consumer spending.”

Jennifer Safavian, executive vice president of government affairs at the Retail Industry Leaders Association, said, “The bill provides for comprehensive tax reform, which is critical to growing the economy and improving U.S. international competitiveness. It accomplishes these goals by…immediately reducing the corporate tax rate from 35 to 21 percent; replacing our current worldwide tax system with a territorial tax system, and modifying individual tax rates, with a focus on providing a tax cut for middle income taxpayers.”

[Read more about the tax plan: Will Tax Reform Round Out Holiday Retail Success or Set the Stage for a Trying 2018?]

The Urban-Brookings Tax Policy Center, which provide independent analyses of tax issues, said the bill would reduce taxes on average for all income groups. In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution, the center said.

“On average, in 2027 taxes would change little for lower- and middle-income groups and decrease for higher-income groups,” the center’s analysis said. “Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025, and 53 percent in 2027.”

The bill permanently sets corporate taxes at 21 percent, instead of the current rate of 35 percent. The bill also temporarily lowers individual tax rates, decreases the inheritance tax and increases the child tax credit.

The House voted 227 to 203 to pass the bill, with 12 Republicans voting against it, 11 of which were from California, New Jersey and New York, where a provision in the legislation limiting the deduction for state and local taxes would be hardest felt. A late change doubling the personal deduction sought to balance those concerns.

The impact of the legislation, which polling shows is highly unpopular with the public for fear that it would actually raise taxes for many instead of reducing them, mainly because some popular deductions like mortgage interest were eliminated, is likely to play a role in the 2018 midterm elections, where all of the House and a third of the Senate are up for election.

House Speaker Paul Ryan (R-Wisc.), a longtime tax reform champion, said, “Today we are giving the people of this country their money back. This is their money after all.”

But Democrat Senate minority leader Chuck Schumer of New York warned Republicans that they would pay a price for the “awful legislation” in next year’s mid-term elections.

“The substance and polling are so rotten that a year from now Republicans will be running from this bill in shame for voting yes this evening,” he said.

Rebecca M. Kysar, a professor at Brooklyn Law School, and Linda Sugin, a law professor at Fordham, wrote in an op-ed in Wednesday’s New York Times that the corporate tax cut was not necessarily written in stone given volatile political winds.

“Faced with the specter of a higher rate in the future amid a tumultuous political environment, corporations may continue to search for lower tax rates abroad and limit their investment here in the interim” they wrote.

The law professors noted that provisions in the act that allow for taxing wage income and business income differently “opens up a bevy of opportunities for the well advised to game the system, which will cost the government revenue and sow distrust of the tax system, even of government itself.”

They also claimed that some of the aspects of the bill concerning international taxation appear to violate World Trade Organization rules.

Related Articles

More from our brands

Access exclusive content Become a Member Today!