Girding for a serious tax battle, retailers turn to funny ads

To deal with what the National Retail Federation calls an “existential threat” to the retail industry, the group is taking an unusual approach for an industry association: a “Saturday Night Live”-like infomercial parody.

Even more unusual, the NRF will actually air the infomercial during “Saturday Night Live” this weekend. The spot resembles a late-night spot for a cleaning product, with a pitchman touting the “benefits” of the border adjustment tax: “The all-new BAT tax is specially designed to make your disposable income -- disappear!”

The NRF has aired the spot on Fox News’ “Fox and Friends” this week and is paying for the commercial to run during “Saturday Night Live” on Saturday. Not coincidentally, these are both programs that President Donald Trump has been known to watch. David French, senior vice president for government relations at the NRF, said the goal was to air the spot where lawmakers and the White House would notice it. 

“’Saturday Night Live’ is an interesting place for public affairs advertising at this point, but this season it’s become part of the public affairs conversation,” French said. “We thought it was a nontraditional place to go but a valuable way to reach policymakers.”

While the commercial may have its tongue planted firmly in its cheek, it highlights an issue that the American public doesn’t widely understand yet could hit their household budgets. By the NRF’s calculations, the border adjustment tax in its first year will add $1,700 in higher costs for the average American family.

Retailers dislike the border-adjustment tax because it proposes higher taxes for imported products are bought within America’s borders. It’s also known as a “destination-based tax” because products would be taxed based on where they’re sold, rather than where they’re manufactured. 

Because retailers for the most part rely on third-party manufacturers, which have largely shifted overseas during the past few decades, the NRF said its members would feel the brunt of the tax. Higher costs would likely be passed onto consumers, making everything from clothing to gasoline more expensive. 

Retailers aren’t alone in opposing the tax: The energy and auto industries are also coming out against it, as are some Republican and Democratic lawmakers, including Republican Senator Lindsey Graham.

The NRF’s French pointed to the hypothetical example of a retailer that currently sells a $20 T-shirt. The price reflects that the retailer bought the shirt from an Asian factory for $10, as well as $8 in labor and other costs. The retailer would pay the current corporate tax rate of 35 percent on the $2 in gross profit, leaving $1.30 in net profit. 

Under the BAT, the $10 the retailer paid for the shirt would no longer be tax-deductible. Instead of paying taxes on $2, the retailer would pay taxes on $12. Even though the tax reform plan including the BAT would also lower the corporate tax rate to 20 percent, the retailer would pay $2.40 in taxes on the shirt, wiping out its profit and pushing it into the red. 

“The border adjustment tax will force retailers to raise prices,” he said. “We don’t know how much business we will lose as a result of that.”

French added, “Our members are approaching this with a seriousness that I’ve never seen. They have all run their numbers and have all assessed what the proposal would mean. They have looked at it every which way. They come to the conclusion that it is an existential threat to the industry.”

If the tax would be negative for American businesses and households, why are Republican lawmakers supporting it? The idea stems from the GOP’s drive to revamp the corporate tax code, which some criticize as too high for U.S. corporations. Their plan would lower the corporate tax rate from 35 percent to 20 percent, which could help lower costs for some businesses. 

The BAT is also designed to help American manufacturers that export their goods because their products wouldn’t be taxed both in the U.S. and in other countries when their products are sold. Overall, the BAT could raise more than $1 trillion in revenue over a decade, according to Goldman Sachs, which would be needed to offset the tax revenue lost from the corporate rate cut. 

Still, President Trump has signaled he’s not entirely sold on the BAT, telling The Wall Street Journal that he believed the tax was “too complicated.” 

“Without clear support from the White House, the BAT faces an uphill climb in Congress,” Goldman economist Alec Phillips wrote in a research note last month. “Even in the House, where support for the BAT appears strongest, some Republican lawmakers have raised concerns.”

Even so, the NRF said it isn’t taking any chances. It’s planning a second phase of its anti-BAT campaign, which will target consumers and voters. While tax reform can be a dry topic, he said the group’s goal is to reach voters and lawmakers with eye-catching ads.

Said French: “The overall effort to oppose the border adjustment tax will be one of the largest campaigns we’ve ever mounted.”

In:
• Tax Reform