WASHINGTON – Target CEO Brian Cornell will argue Tuesday before a House committee against a tax change that would significantly increase the cost of imports for the Minneapolis-based retailer.
Target CEO to testify in Washington against border adjustment tax
Proposed rule could drive price increases for retailers.
May 23, 2017 at 1:37AM
Target, one of the top sellers of imported goods in the United States, has been fighting the proposal since Republicans floated it late last year as a way of encouraging American businesses to bring foreign jobs home and create new ones in the United States.
If the tax is enacted, U.S. companies would in effect pay taxes on the full cost of imported items and not just on profits from sales of those items. The proposal, known as a border adjustment tax, aims to offset tax cuts elsewhere in a tax reform plan under consideration in the House.
Target, along with Richfield-based Best Buy and other retailers that sell a lot of foreign-made goods, has been aggressively lobbying against the change. Cornell has met with 30 lawmakers since December, and Target government affairs staffers have held more than 200 meetings with lawmakers on the issue, spokeswoman Dustee Jenkins said.
While the company supports tax reform, Jenkins said, "We are incredibly concerned about the impact of this particular legislation."
Cornell will appear Tuesday at a House Ways and Means Committee hearing titled "Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas." Other speakers include the chief executive of Archer Daniels Midland, a big exporter that backs the plan, and former Wal-Mart CEO Bill Simon.
While Simon has expressed support for the border tax, Wal-Mart is part of a retail coalition that has been working against it.
Supporters of the proposal have argued that the value of the U.S. dollar would adjust to offset any tax effect on consumers. But retailers question that and say the likely effects of the proposal would be either higher prices for shoppers or lower profits.
Rep. Erik Paulsen of Minnesota, a Ways and Means Committee member, voiced some support for the measure earlier this year, though his office didn't respond to messages in recent days seeking an update on his position.
He told the Star Tribune in February that he had been meeting with dozens of businesses on Capitol Hill and offered to put them in touch with Ways and Means Committee Chairman Rep. Kevin Brady (R-Texas), his roommate in Washington.
Minnesota's other House Republicans, Reps. Tom Emmer and Jason Lewis, haven't stated their positions on the tax this year.
Last week, in a conference call organized by border adjustment opponents, Madesmart Housewares, a St. Paul company that imports and sells Chinese-made products to help organize kitchens, offices and bathrooms, said it would have to increase its prices by one-third if the tax went into effect.
On Monday, Target said prices could rise up to 20 percent on some of its inventory. Otherwise, the company suggested in a recent securities filing, it could take a major hit to its bottom line.
"A large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source," the company said in the filing. "[M]ajor changes in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income."
Cornell was also among a number of retail executives who met with President Donald Trump in February to share their concerns about the proposed tax. Best Buy CEO Hubert Joly, who also opposes it and has traveled to Washington to talk to lawmakers about it, participated in the White House meeting, too.
Major retailers met recently with Treasury Secretary Steven Mnuchin to voice opposition to the plan.
The Minnesota Retailers Association (MnRA), like its national counterpart, is fighting the measure.
"Tax reform is a great idea," said MnRA President Bruce Nustad. "But the border adjustment tax is not the right approach for Minnesota retailers."
Last week, Cornell told reporters that he's been "very engaged" in Washington to make clear Target's point of view that the tax would lead to higher prices on basic household essentials and on things like children's clothing.
"We've made a strong case that this is not the right thing for America," he said.
When asked how worried he was about the tax becoming a reality, he said he felt the retail industry had been effective in getting its message across to lawmakers. "I feel like we're in a much better place today then we were on Jan. 2," he said.
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