Why Fashion Companies Are on the Fence About Trump’s Corporate Tax Cuts

Donald Trump
President Donald Trump holding a meeting on Feb. 23.
REX Shutterstock

President Trump today laid out a tax-reform plan that includes sharp cuts in individual and corporate tax rates — including the plan’s headline-making centerpiece: a 15 percent business tax rate, a significant reduction from the current rate of 35 percent.

The proposal also calls for a reduction in the number of individual tax brackets from seven to three: 10 percent, 25 percent and 35 percent.

The plan did not include a controversial border adjustment tax (BAT), which has been widely criticized by many footwear and apparel firms. It did, however, signal support for switching to a territorial tax system that taxes companies’ domestic income but not their foreign income. (Such a system is said to involve incentives for companies to maintain U.S.-based headquarters.)

Where the fashion retail industry is concerned, Matt Priest, president of the Footwear Distributors & Retailers of America, said he believes tax reform is a priority for companies, but earlier suggestions that BAT would be used to fund tax reform is keeping the industry cautious. (BAT is part of a tax-reform plan proposed by House Republicans. It would essentially tax the value of imports but not the value of exports.)

I think [tax reform] is particularly a priority for retail because it’s one of the highest-taxed businesses,” Priest explained. “I think, ultimately, a lot of us have been wanting this tax reform, because it makes the U.S. more competitive and provides a tax holiday, or a reduced tax burden, on foreign funds that are brought back, which this proposal will do.”

However, Priest added, the biggest obstacle preventing fashion industry executives “from being excited about it has been the mention of the border adjusted tax to help pay for it.”

Until the Trump administration can definitively explain how they plan to fund tax reform, Priest said he believes much of the retail industry will remain on the fence.

The biggest question is to figure out how they will pay for this — how does [the administration] find revenue generators to help cover the cost of lost revenue from tax reform?” Priest said.