Commentary: Swinging the BAT at your supply chain

Although proponents of the proposed border adjustment tax argue American corporations have nothing to fear, many importers find that to be far-fetched.

   American shippers beware: congressional lawmakers on Capitol Hill want to take a BAT to your supply chain. Not the Louisville Slugger variety, but figuratively through the “Better Way Forward” plan’s proposed border adjustment tax, also known as BAT.
   The border adjustment tax, authored by House Ways and Means Committee Chairman Kevin Brady, R-Texas, is part of an effort to jumpstart the U.S. economy. If implemented, it would tax imports on the front end at their full sales value, rather than on the back end as income, while giving exports a free pass. The Tax Policy Institute estimated the BAT will generate $1.2 trillion over 10 years, making it one of the largest revenue raisers to pay for the Better Way Forward plan.
   Proponents of the plan say American corporations have nothing to fear because import prices would only go up 10 percent as the U.S. dollar will also appreciate by 10 percent.
   But many importers think that’s a far-fetched scenario, and that the only result will be American consumers paying more for their goods, with the 20 percent tax increase under the BAT being passed on to them at the checkout counter. Those taxes will be applied to anything from clothing and shoes to produce or the price of gasoline at the pump. What the BAT will also do is cause global, as well as small and mid-sized shippers to reorganize their supply chains to figure out the most optimal ways to skirt, or at least avoid the full brunt of, the tax.
   While U.S. exporters are expected to be winners in the BAT, trade experts warn that the border tax would serve as a huge incentive to sell everything produced here abroad because companies could keep more money from the transaction in their pockets. Domestic buyers would have to pay more – enough to equal or exceed the tax advantage enjoyed by the manufacturer – to make it worthwhile to sell to them, according to recent analysis by American Shipper’s Adam Smith Project.
   It’s uncertain whether the U.S. border adjustment tax, as currently proposed, runs afoul of World Trade Organization rules, but surely the global trade body will be asked to put BAT under the microscope.
   U.S. importers appear to have had all the advantages over domestic manufacturers and exporters for almost a generation now, but who can fault them? American consumers want the cheapest goods possible, and large importers, like Walmart, Target and many more like them, have been able to accommodate that demand by doing their best to work around the country’s onerous corporate tax system – again giving the appearance that they’re not paying their fair share of American taxes.
   There must be a better way for the government to generate revenue, maybe not as much as the BAT is expected to wring out, but in a way that’s more palatable for U.S. importers and exporters to absorb without encouraging additional offshoring of manufacturing. What’s more, the alternative must include safeguards to ensure that any additional tax burden isn’t simply passed on to the American consumer.
   And keep in mind, what happens in Washington doesn’t always make sense in practical application – remember the legislation calling for 100 percent inbound container inspection in the aftermath of the Sept. 11, 2001 terrorist attacks?
   Shippers need to carefully analyze the BAT plan and understand the potential long-term effects on their businesses. No matter which side you fall on, a tax of this nature, if implemented, is going to be extremely disruptive to supply chains.