Rich Harper, international trade manager for the Outdoor Industry Association, explains the border adjustment tax and how it could impact the outdoor industry.
House Republicans want tax reform, and what they’re proposing is no small change from the current corporate tax structure.
While they haven't yet released the text of the bill, the "border adjustment tax" they've proposed could make outdoor gear far more expensive, as it threatens to penalize companies that manufacture abroad. The Outdoor Industry Association has yet to take an official stance on the tax, as it’s still consulting with members to find out how they could be affected. But the organization has a long list of questions to ask House Republicans as they craft the bill.
We caught up with Rich Harper, manager of international trade for the Outdoor Industry Association, to find out how this kind of corporate tax reform could impact the outdoor recreation economy.
1. How could the border adjustment tax affect the industry?
The border adjustment tax could have a dramatic impact on your tax bill. Currently, importers pay a 35 percent corporate tax rate and they’re allowed to deduct the cost of their imports from their tax bill. With the border adjustment tax, the tax rate drops to 20 percent, but you’re not allowed to deduct those import costs, so your tax bill could go up.
Exporters could potentially see their tax bill go way down. Those are the key ways in which the BAT could affect the industry. Of course, it’s possible, with higher tax bills, that some of these costs could be passed on to the consumer.
We haven’t yet seen the final details of the legislative text, which I think is important. We’re also asking a lot of questions to our members, and we haven’t come out with a position yet. That being said, based on some of the initial feedback, some of our members have expressed concern that their tax bill could go way up, and these costs could then get passed on to consumers.
2. Could we see a rise in domestic manufacturing of outdoor goods because of this bill?
I certainly think that the proponents of this bill would argue for that. They want, in part, to pass the border adjustment tax to incentivize domestic manufacturing. But it would be unlikely that we would see a significant re-shoring of the type of jobs that go with manufacturing of high performance apparel and footwear.
A lot of these products have been sourced abroad for many years. They’re highly innovative, highly technical products, and it would be unlikely to see the re-shoring of these products in the near future. Part of what we’re trying to do is ask some of those questions: What the transition period will look like for the tax, what would go in place immediately, and whether there would be any exemptions to what this would cover. We’re anxious to see the finer details when the legislative text is released. We’re expecting that to happen in May or June, before the 4th of July recess.
3. What are you asking OIA members to do right now?
I’m the manager of OIA’s international trade program, so I’m asking my colleagues to get to know trade policy very well. It’s just a blueprint, but based on what we know so far, we’re asking members how they anticipate that their tax bills would change. That’s what we’re looking for right now, asking for that kind of feedback. Based on what you know so far, would your tax bill likely go up? Would it go down? What kind of costs would you have to pass on to the consumer?
We have a healthy trade agenda this year [at Capitol Summit], and the border adjustment tax will potentially be part of that. While we haven’t yet taken a formal position on it, we’ve certainly heard from some members who are very concerned. We’re trying to engage in a dialogue with House Republicans. It’s going to be an active year for OIA trade. With this administration, they’re obviously going to put an emphasis on domestic manufacturing. We want to put a good foot forward, find common ground where we can, and still be a good advocate for the industry.
Want to meet your representatives in person and advocate for your business, the industry, and outdoor recreation? Sign up for OIA’s Capitol Summit lobbying event in Washington, D.C., on April 25 and 26.