Why We Should Say “No” to the Border Adjustment Tax

Editor’s note:Mark Dohnalek is President & CEO of Pivot International, the Kansas-based global product development, engineering & manufacturing firm. He can be reached at He can be reached at [email protected].

With tax reform proposals coming this week, every manufacturer and supply chain provider should be watching out for a possible Border Adjustment Tax (BAT). And, if we see it we must quickly root against it. Why? Because there is no point to the rollbacks and regulation relief only to be hit with a BAT that would surely stunt the economy. If a BAT is enacted it would be a genuine case of taking one step forward and two steps back. Here's how it works and what we could expect.

Every US-based retailer, both independents and major chains, rely heavily on imports. Merchandise lining stores shelves and filling warehouses, even if production is finalized in the US, would be taxed as imports because of how they are made. Electronics, computers, apparel and accessories, household appliances, toys, automobiles, and much else are built with all types of embedded parts that are rarely US made. Manufacturers find and buy them through the global sourcing marketplace which is often a necessary part of our operational supply chains. Nearly everything we sell has a large percentage of internal components sourced somewhere else in the world and they would be subject to the BAT.

When prices rise, consumer spending will slow dramatically. When prices for TVs, smart-phones and blenders start to soar, sales will slow because people won't be able to afford them. The key to a strong economy is a stimulated economy but that won't happen when fewer people buy. In fact, sluggish sales have the potential risk of a recession. And, job loss is sure to be the result of that.

Stores of all sizes from big box to small retailers selling less will cut back on staff. A BAT, which could be as high as 20%, will significantly impact retailer payrolls and hiring. And, of course, that leads us to how long they can actually stay in business. Not only in retail but the firms who manufacture in the US will have less demand and will reduce staff. All US manufacturers and supply chain providers should be knowledgeable about the BAT and the negative impact it will likely have on our industry and the economy overall.

One way to do this is by accelerating the tax deduction of capital investments, such as plant and equipment. This should be accompanied by continued and meaningful relief from unnecessary regulations. If the tax code provides an immediate or accelerated tax write-off and reduced regulations, then we've got a realistic, competitive method of lowering the cost of operations and thereby lowering the cost of domestic production.

These actions will lead to a much more positive and competitive environment for US manufacturers, logistic partners and the entire supporting supply chain.

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