- Representatives from industry trade groups such as the National Retail Federation and Retail Industry Leaders Association, along with eight retail executives including Target CEO Brian Cornell, Best Buy CEO Hubert Joly and Gap Inc. CEO Art Peck, met with President Donald Trump on Wednesday to express their concern over a proposed 20% tax on imports which they claim will result in spiked prices for consumers.
The immediate reaction from retail executives coming out of the meeting was positive, Christin Fernandez, vice president for Communications at RILA, told Retail Dive. “President Trump was more than willing to sit down with industry [leaders] and hear our concerns, and I think that there is a real willingness to work together with the industry moving forward,” she said. Fernandez added that RILA members also met Wednesday on Capitol Hill with several members of Congress, and they will continue the discussion.
The so-called “border adjustment tax,” intended to tax imports but not exports, would prevent retailers from deducting the cost of merchandise they import, hiking taxes three to five times higher for some merchants. "There are other ways to both lower the rate, simplify the code and broaden the base,” NRF President and CEO Matthew Shay said on CNBC. “We should go back to the drawing board, roll up our sleeves and find another way that doesn’t propose a new law that’s going to pick winners and losers among industries and is going to add, frankly, a new sales tax on the price of everything consumers buy.”
Retailers are hungry for corporate tax reform, but not if it comes on the side of a border adjustment tax. Trade groups like the NRF and RILA, as well as individual retailers, have voiced concern over the tax plan since it was floated last summer by Speaker of the House Paul Ryan (R-WI). Now that Trump seems to have given his approval, retailers are gearing up the fight by joining forces and jetting to Washington to plead their case. More than 120 retailers and trade organizations recently launched a national coalition, dubbed Americans for Affordable Products, to fight the implementation of a border tax.
But it’s not clear what compromises, if any, the industry reached with the president, considering that most of the meeting was not open to media. During the section the public session, Trump did not clarify whether he will levy a border tax on imports, but said "We're going to simplify the tax code. It's too complicated. In fact, H&R Block probably won't be too happy. That's one business that won't be too happy," USA Today reports. (Following Trump's comments, H&R Block shares hit a session low, down 2.6% on Wednesday before recovering to trade 0.1% lower, CNBC reports.)
Retailers have plenty to worry about if such a proposal becomes law. Analysts say that for most large retailers, lowering the tax rate to 20% won’t sufficiently make up for lost sales due to the higher prices wrought by import taxes. The earnings risk to six major U.S. retailers could add up to as much as $13 billion, The Wall Street Journal reported last month. Scot Ciccarelli, RBC Capital Markets analyst, said Best Buy’s annual earnings would be “wiped out.”
What is puzzling about this meeting is that retail thought leaders' once-fiery concerns were replaced with cool and collected reactions following the meeting. AutoZone CEO Bill Rhodes greeted press following the meeting, saying that as a 22-year retail veteran he couldn’t remember a time that retailers had previously visited the president, touting Wednesday's sit down as an accomplishment in and of itself. He described the meeting as a “positive and productive conversation.” The retail executives also received a smiling cameo on Trump’s Twitter feed:
Great listening session with CEO's of the Retail Industry Leaders Association this morning! pic.twitter.com/sy6xJcWfcF— Donald J. Trump (@realDonaldTrump) February 15, 2017