Fearing Border Tax, Retailers Boost Lobbying 31 Percent

President Donald Trump at a listening session with CEOs from the retail industry in February. Seated from left to right are M
President Donald Trump at a listening session with CEOs from the retail industry in February. Seated from left to right are Marvin Ellison of J.C. Penney, Jill Soltau of Jo-Ann Stores LLC, and Art Peck of Gap Inc.

It’s been a remarkably tough year for the retail sector. So far in 2017, retailers have set a record pace for bankruptcies and store closings. Household names are faring no better than small shops: J.C. Penney said it would shutter 138 locations in July; Macy’s expects 68 locations to close this year; and Sears Holdings will turn off the lights at over 170 Kmart and Sears stores. Since January, 50,000 retail jobs have been cut.

Credit ratings agency Moody’s added to an already-grim outlook when, earlier this month, its list of U.S. retailers at risk of bankruptcy rose to 22. That’s higher than the 19 at-risk retailers singled out during the financial crisis.

Amid this gloomy picture, retailers are lobbying more than ever. Lobbying expenditures rose by 31 percent in the first quarter of 2017 compared with the same period last year. So far in 2017, retailers have spent $16.4 million lobbying Congress. They spent $45.8 million last year.

Retailers are pushing for “anything that puts money in the consumer’s pocket,” says Howard Davidowitz, an independent retail consultant. That means tax cuts are a top priority.

It’s little surprise that lobbying spiked as Republican leadership in the House has called for a border adjustment tax. To encourage domestic production, the controversial tax arrangement would tax exporters at a lower rate than importers by allowing companies to deduct the cost of American-made goods from taxable revenue. Retailers, whose products are mostly imported, would be hard hit under the proposal. They argue that consumers would ultimately bear the cost of such a tax—to the tune of $1,700 each year—through higher prices.

Retailers jumped into action to oppose the bill. CEOs of Target, Best Buy, and J.C. Penney, among others, met with President Trump in February. Retailers joined oil refiners and automakers to launch Americans for Affordable Products, an advocacy group that has aired ads criticizing the tax proposal. (Companies that primarily export, like Boeing and Dow Chemical, formed their own group—the American Made Coalition—in opposition.)

Testifying before the House Ways and Means Committee, Target CEO Brian Cornell estimated that Target’s tax rate would increase by 40 percent with a border tax. He added that Target’s customers—“middle-class working families whose budgets are already stretched”—would bear the brunt through price hikes. Cornell got a sympathetic response from Rep. Erik Paulsen (R-Minn.), who once worked for Target and now represents the company’s home district. Paulsen said he could not support border adjustment in its current form. Behind the scenes, Target has spent $1.3 million lobbying just this year—jumping from number ten to number four in lobbying outlays among retailers since 2016, when it spent $1.7 million.

Those efforts have kept border adjustment at bay. In an interview with CNBC last month, Treasury Secretary Steven Mnuchin criticized the scheme for creating an uneven playing field with “different impacts on different companies.” In private he has signaled to lawmakers that the tax proposal does not have White House backing.

But retailers will not rest easy until they’ve killed off talk of border adjustment for good. That hasn’t happened yet: Border adjustment is tied to corporate tax reform, a centerpiece of the Republican agenda. (Authors of the Republican tax blueprint claim that border adjustment will raise $1 trillion in tax revenue over a decade, which will be necessary to offset revenue losses from their goal of a significantly lower headline corporate tax rate.) On Tuesday Speaker Paul Ryan (R-Wis.) made clear that he plans to push ahead with a tax overhaul in 2017. Earlier this month, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said he wants to see border adjustment phased in over five years.

Another lobbying issue for retailers is a digital sales tax. Here retailers are divided: On one side are remote sellers that have no obligation under federal law to collect and remit tax on Internet sales. On the other side are big-box retailers and Amazon, which do charge sales tax. In April, senators reintroduced a bill known as the Marketplace Fairness Act to address the discrepancy. (It passed the Senate in 2013 but never made it to the House.) The National Retail Federation, a trade group that has spent $2.3 million lobbying this year, backs the bill.

A digital sales tax seems low on the list of lawmaker priorities. Mired in debates over healthcare and corporate tax reform, “Congress has bigger fish to fry,” says Richard Pomp, a law professor at the University of Connecticut.

Part of the retail lobbying frenzy this year is due simply to the fact that there’s a new administration, adds Davidowitz, the consultant. “There’s a tremendous amount of change being talked about. It would be understandable that you want to get the word in as quickly as you can to the new people.”

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