House Democrats want to roll back some Trump-era tax law provisions, potentially thrusting retail into the crossfire.
The draft tax plan would raise $2.9 trillion in new taxes and revenues, based on the current version sent to the House Ways and Means Committee Sunday. The rate hike would apply to retailers and other companies earning more than $5 million. The plans proposes higher income taxes on wealthy Americans, and suggests raising capital gains taxes on certain assets.
If enacted, , most of the provisions would claw back many of tax law amendments greenlit by then-President Donald Trump, who galvanized Republican congressional members to cut the corporate tax rate to 21 percent from 35 percent in 2017. House Democrats figuring out how to pay for a multi-trillion spending plan encompassing expanded child tax credits, paid family medical leave and two free years of community college are giving those corporate-tax cuts a second look.
In addition, the Senate last week passed a $1 trillion bipartisan infrastructure bill that would rebuild national roads and bridges, and fund climate and broadband initiatives, although House Speaker Nancy Pelosi and the majority of the Progressive Caucus said they won’t vote on it unless the same legislative body passes a separate $3.5 trillion social policy bill.
And while the proposed 26.5 percent tax rate is higher than what corporations are paying now, it’s less than the 28 percent President Joe Biden originally suggested. In addition, businesses earning between $400,000 and $5 million would still be taxed at 21 percent. Companies with revenues less than $400,000 would have their tax rate trimmed to 18 percent.
Retail industry groups decried the tax proposal’s potential fallout.
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“The dramatic increase in spending proposed in the budget resolution is a serious cause for concern given the current state of the economy,” David French, senior vice president of government relations for the National Retail Federation (NRF), said. “Using higher taxes on business to fund the high spending levels would have severe ramifications on businesses and consumers.”
The retail industry pays one of the highest effective tax rates of any industry, benefitting from few of the tax incentives or credits in the Internal Revenue code, the retail group said. A tax increase would force all businesses, not just retailers, to increase prices for their products and services, which would drive inflation and mean high prices for consumers, it added.
In a letter sent Monday to Representative Richard Neal (D-Mass.), who chairs House Ways and Means Committee, and to Committee Ranking Member Kevin Brady (R-Texas), NRF cited a recent EY study documenting the hundreds of thousands of job losses, GDP declines, wage challenges and other negative effects of higher taxes on retailers..
Retail Industry Leaders Association (RILA) voiced similar objections on Monday.
“Leading retailers are extremely disappointed to see a tax draft that raises rates on retailers who already pay high marginal rates while allowing profitable companies to pay little to nothing in domestic corporate taxes. This is an enormous policy failure and is blatantly unfair to retailers operating in every community who pay their full freight in taxes,” Hana Greenberg, RILA’s vice president of tax, said.
“If Democrats are serious about making sure everyone pays their fair share in taxes, a giant tax increase on industries already paying high rates while failing to address the uneven burdens in the current tax code, fails to meet that standard,” Greenberg added, describing the draft as a “non-starter for retailers.”
RILA urged Congress to refrain from adopting policies that would adversely impact the workforce and recovering economy, and said it should “consider alternative tax fairness measures before considering an increase to the corporate tax rate.” It also pointed out that in addition to the federal corporate tax rate, national retailers also fork over state and local taxes, according to its Sept. 9 letter to Pelosi, Senate Majority Leader Chuck Schumer, House Minority Leader Kevin McCarthy and Senate Minority Leader Mitch McConnell.
“Many brick-and-mortar retailers have an effective tax rate of nearly 25 percent making it among the highest effective tax rates of any industry, particularly relative to competitors whose rates can be in the single digits,” said Michael Hanson, RILA’s senior executive vice president for public affairs, who authored the missive to lawmakers. “Because of their operating model and footprint, most brick-and-mortar retailers cannot benefit from the deductions, credits and other tools that drive tax rates downwards. Every point the rate goes up increases the tax retailers pay and directly impacts their ability to compete and to invest in employees, innovation, and communities.”
Hanson noted that increasing the tax rate fails to address companies that pay little to no tax, and asked Congress to should ensure that “all companies pay at least a minimum tax before an increase in the corporate tax rate is considered.” Congress should reduce the tax gap—the difference between taxes owed and taxes paid—to ensure a fairer tax code, he added. That essentially would mean collecting taxes on what’s already owed before raising taxes on companies that already pay their share, he said.