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BAT Battles on But Leaders Still Divided Over the Tax and Its Impact

The jury still seems to be out on whether the border adjustment tax is a pro or con for America. And at a House Ways and Means Committee hearing on Tuesday, division among the leadership was clear.

The aim of the hearing was to address increasing U.S. competitiveness and preventing American jobs from moving abroad.

In his opening remarks, House Ways and Means Committee chairman Kevin Brady (R-Tx) said, “Americans are being hurt because our nation is saddled with one of the most costly, unfair, and uncompetitive tax systems on the planet. According to the nonpartisan Tax Foundation, when it comes to competitive tax codes America is ranked nearly last among our global competitors: 31st of 35.”

The border adjustment tax, which would tax imports at 20 percent and exempt exports, has been met with much criticism—both within Washington and among retailers who fear the punitive tax would be a detriment to business.

For Target, that fear is a real one, and the company’s CEO had as much to say at the hearing.

“It’s simple math,” Business Insider reported Target CEO Brian Cornell as saying. “If the government takes nearly four out of every five dollars we make…there’s no capital to invest and no prospects for growth. And that matters a lot. Both to us and to the American economy. Instead of investing and creating American jobs, we’d be pushed in the other direction.”

But according to Brady, the border tax would be the cure to America’s manufacturing ills—and to restoring the jobs it’s lost.

As the chairman continued in his remarks, the tax reform “Blueprint” as he referred to it, would end the ‘Made in America’ tax and instead tax all products and services sold in America at what he called a “low rate” of 20 percent. There would be no special tax breaks for foreign products and it would be “true competition for the first time” he said. The tax on ‘Made in America’ products and services would be lifted when sold abroad, which Brady expects will level the playing field for American businesses and workers.

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“Our goal is not simply to eliminate any tax reason to move American jobs overseas, but to reestablish America as a 21st century magnet for new jobs and investment,” Brady said. “And for the first time, companies will no longer gain by moving their headquarters to Bermuda, their manufacturing plants to China or their intellectual property to Ireland.”

Apart from Target, retailers and the organizations that represent them, still aren’t at all convinced things will go so swimmingly with a border tax in place.

In a statement following Tuesday’s hearing, The Footwear Distributors and Retailers of America (FDRA) expressed concern that the House is continuing to advance the border tax at all.

The border tax, according to FDRA president and CEO Matt Priest, “would hit consumers with a $1.2 trillion tax hike and drive up shoe prices for working class individuals and families.”

“As Target CEO Brian Cornell made clear to the Committee in his testimony today, the BAT will harm American consumers and create uncertainty for American businesses that we rely on for job creation,” Priest continued. “The BAT is based on academic theory not real world experience.”

Several lawmakers on the panel expressed their opposition to the border tax, some saying they are concerned consumers will be hit too hard. More than that, Republicans’ clearly divided stance may not bode well for BAT either—Senate Majority Leader Mitch McConnell said last week that the tax likely wouldn’t pass the Senate and Treasury Secretary Steven Mnuchin said Tuesday that the BAT doesn’t in fact create a level playing field.

It remains to be seen what next steps will be, but back on the retail side, the American Apparel and Footwear Association made it a point to reiterate its opposition to the BAT following Tuesday’s hearing.

“While it is clearly time to institute tax reform, the border adjustment tax would have a disturbing impact on the U.S. apparel and footwear industry and refutes many of the positive provisions included in the overall House tax blueprint,” AAFA president and CEO Rick Helfenbein said. “Unfortunately, and without question, the BAT provision would adversely impact low-income American families that rely on inexpensive essentials, such as clothes and shoes. The BAT must not be included in corporate tax reform, period.”