business news in context, analysis with attitude

The Wall Street Journal reports that US retailers could be facing an enormous impact on their earnings if the US Congress and Trump administration are successful in implementing what is being called a "border-adjusted tax proposal" designed to drive up the cost of imported products.

According to the story, "Among the companies whose earnings are calculated to take a hit under the so-called border-adjusted tax proposal are Wal-Mart Stores Inc., Costco Wholesale Corp. , Genuine Parts Co. and Dick’s Sporting Goods Inc., analysts said.

"The earnings hit to six big retailers could total nearly $13 billion, according to RBC Capital Markets analyst Scot Ciccarelli, with Best Buy Co. ’s annual earnings wiped out. To offset their higher tax bills, retailers would need to increase revenue by raising prices for consumers, he said."

The Journal writes that "the proposal would cut the corporate tax rate, let multinational firms repatriate foreign profits and allow companies to write off capital expenses immediately. At the same time, the 'border-adjusted' portion of the proposal would impose taxes on imported goods by making imports a nondeductible expense, and exempt exports.

"Authors of the Republican tax plan crafted it to spark economic growth and reduce the incentives for U.S. companies to shift jobs, profits and headquarters out of the country."

Analyst Ciccarelli estimates that Walmart's annual tax from $6.6 billion to $16 billion, Costco's from $1.2 billion to $3.2 billion, and Best Buy's from $600 million to $3.8 billion. These are just estimates, the story notes, because retailers generally don't break out what percentage of the their revenues come from imported products.

And, to be sure, there would be compensations - such as the GOP's proposal to lower the corporate tax rate from 35 percent to 20 percent.

The Journal writes that the border-adjusted tax proposal could bring the federal government as much as $1 trillion in new taxes.
KC's View:
I've long argued that in this country we don't really know what things actually cost, which makes it harder to assign value to things. This may be about to change, and things that we've gotten used to spending not-too-much money on may end up getting a lot more expensive.

It remains to be seen whether this will create economic growth or recession, and whether the new taxes will be compensated for by increased sales. But it sounds like we're going to find out ... and retailers that sell imported products have to go to school on how these policies are going to affect them.