Commentary: Border adjustment tax bad news for Pa.

By Warren Chaiken

and Gene Chaiken

The looming debate over tax reform in Washington could have a disastrous impact on one of Pennsylvania's most important job-providing industries.

Retailers support more than 1.6 million jobs in our state and contribute $96 billion a year to our economy. To put this in context, if every worker in the Keystone State whose job was connected to the retail industry stood shoulder to shoulder, they would stretch the entire length of the Pennsylvania Turnpike, all 360 miles of it.

Retail and food merchant employees are put at risk if Congress moves forward with their plan to establish a border adjustment tax (BAT) on imports. The BAT would function as a $1 trillion national sales tax that would punish employers, both large and small, and the men and women who work in them, threatening 156,000 different Pennsylvania businesses.

Goldman Sachs estimates that retailers could see a price increase of 20 percent on imported goods sold in the United States, which means they would need at least a 20 to 25 percent increase in prices in order to just break even. This tax wouldn't be limited to large, big-box retailers. Small- and medium-sized businesses, and even sole proprietors, that rely on imports in some fashion will be hit with this blunt instrument. A price hike that significant will be out of reach for many customers and will surely result in lost sales. The lost revenue over time will lead to painful changes, like downsizing or eliminating employee positions altogether.

Beyond its negative impact on Pennsylvania employers, the BAT hits middle and low-income families hard because they spend a larger share of their disposable income on imported goods. If the BAT becomes law, working families would pay more for groceries, clothing, shoes, electronics, and prescription medicines. Moreover, motorists in our state could see gas prices skyrocket by as much as 55 cents a gallon, according to a study by the Brattle Group

According to the National Retail Federation, the average family in Pennsylvania may spend an additional $1,700 each year as a result of the BAT. Simply put, this is a loss that many families can't absorb.

Proponents suggest that the dollar will strengthen under a BAT by as much as 25 percent and help level the playing field against our competitors. This is based on the flawed assumption that demand for exports will outweigh the demand for imports, not to mention the incredible unpredictability of international currency markets. But when you are taxing essential products like food and clothing, the real result will be inflation and higher costs for consumers.

Furthermore, any attempt to tax imports will likely be retaliated against in other countries by enacting similar trade measures that boost their own exports and penalize U.S. imports. In a recent interview, Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy said, "The question is whether that would just mean a whole bunch of litigation or whether it would mean a trade war between members of the [World Trade Organization] and the U.S." J.P. Morgan analyst Adrian Mowat put it more succinctly, "Protectionism is bad for growth."

Rather than instituting a tax that picks winners and losers, it makes more sense to first explore cutting the size of government and reducing spending so the tax code can be simplified and rates lowered equitably. Cutting taxes for some of the biggest multinational companies, which already use tax shelters and loopholes to avoid paying their fair share, at the risk of jeopardizing the jobs of hard-working Pennsylvanians is not an idea that anyone should support.

The BAT would devastate thousands of Pennsylvania businesses, and leave our economy and middle and low-income families worse off.

As a fiscal conservative who has fought valiantly to enact pro-growth policies, Sen. Pat Toomey (R., Pa.) and the other members of the state's congressional delegation can play an important role in protecting jobs and working families, while also ensuring that tax reform is done right. Lower rates, simplification, and smart policies will result in investment and innovation. They will give our economy the jolt it needs, while lifting up middle-class incomes.

Warren Chaiken is president and CEO of Almo Corp. in Philadelphia. wchaiken@almo.com

Gene Chaiken is chairman of Almo Corp. echaiken@almo.com