Get Ready to Pay More for Your Favorite Products

By February 13, 2017Economy, Millennial Issues

The United States tax code clearly needs reform, but one plan being proposed by House Republicans—border adjustment—will have a significant negative impact on consumers. 

In our global economy, so many of the products we use every day are imported to the U.S.—the Apple iPhone you’re checking Facebook on, the Nike tennis shoes you work out in, the Jose Cuervo tequila that’s in your happy hour margarita.

Under border adjustment, a company would be taxed based on where their products are sold, not where the company is headquartered. Supporters of the strategy say it’ll keep businesses from moving abroad to try to escape the United States’ high corporate taxes.

But the real result will be consumers paying much more to cover the added expenses.

Under our current tax code, companies pay a 35 percent corporate income tax on a product’s profit, regardless of if it’s made in the U.S. or imported from another country. The tax plan from House Republicans lowers that rate to 20 percent, and only applies to profits made in the U.S., both of which are solid, pro-growth reforms. However, if border adjustment is included, U.S. companies that import materials and products will no longer be able to deduct those costs from their taxable income, effectively slapping a 20 percent tax on everything that is imported.

Target is one of the top importers in the U.S. Say the company imports a table at a cost of $75 and marks it up to $100 when selling it to you. With other expenses and fees, they make a $10 profit. Right now, Target would pay $3.50 in corporate income tax based only on their profit. But if border adjustment were implemented, they’d be taxed on the $10 profit and the $75 they paid to import the table for a final tax bill of $17.

Who do you think will cover the added $13.50 in taxes? That’s right—us, the consumers.

 If lawmakers really want to incentivize companies to stay in the U.S., they should make our tax code simpler and fairer for all. Companies who would face the new import tax would likely just raise their prices to cover the additional taxes, but consumers can’t afford to pay so much more on products we use every day.

Author Patrice Lee

Patrice Lee is the National Spokesperson for Generation Opportunity.

More posts by Patrice Lee
  • Emily Wheatley

    You left out the part about consumer choice…

    • Cataleap

      Indeed. This severely limits consumer choice, because many furniture companies will go bankrupt. They will be forced to increase their product price, turning off customers. Then it’ll be a competition for the cheapest shipment to the United States, in which big corporations will make deals with big shipping companies, driving out small businesses.

  • Loomy

    Maybe the companies that have been making record profits will just make OK profits…its not like they have passed on ANY profits…records or not to Employees in years as they scoop up the money. Maybe they will just have to wear it. Given how little they have paid their workers, THEY can’t afford to bear any passing on of extra costs!

    That’s Karma for them!

  • A small 4% VAT (to replace business payroll taxes) would be much better than a large 20% BAT that allows deduction for all U.S. wages. The C corporation income tax can and should be reduced by eliminating tax expenditures and increasing the tax on dividends (shifting the tax from business to individual business owners).

  • quikmantx

    Articles that assume readers use certain brand name products leaves a sour taste for those that don’t use those products. I don’t use an iPhone, wear Nike tennis shoes, or drink Jose Cuervo tequila. Now the rest of the article feels less relevant to me. Stick to the facts.

    • Corporatist

      Really? You think only certain brands are imported?

  • Walter Ochynski

    Should US introduce 20% VAT all prices would rise by 20% not just prices of imported goods. Patrice is right as far as the provided example is concerned but the example cannot be generalized. Should the importer not look for $10 profit but a substantial higher profit then results look different. For example if importer purchased goods from abroad for $75, incurred expenses of $15 and then sold goods in US for $200. Then under current tax system with tax rate of 35% he would pay $38.5 in taxes. However under the BAT he would pay only 20% on ($200 less expenses of $15). This amounts to $37 in taxes, less than before. So potentially prices of imported goods with higher profit margin could go down or not rise so much after introduction of BAT. Patrice did not mention this in his article.