Automakers: Possible Border Tax Would Raise Prices, Even On American-Made Cars

Facing a possible new tax on imported goods, some of the biggest name in auto manufacturing and retail are calling on lawmakers to rethink the tax, claiming it will hurt their businesses and lead to higher prices.

While no actual legislation has been introduced, the proposal that has been kicking around Capitol Hill for the last month or so involves cutting the current corporate income tax rate of 35% to 20%. To make up for that rate drop, companies would no longer be able to deduct the cost of imported goods from their profits.

So, for example, imagine a U.S. company that imports $1 million worth of product, and sells them for $2 million stateside after spending about $500,000 domestically, resulting in a profit of $500,000.

Under the current tax code, the company deducts the import and domestic expenses, and pays 35% tax, but only on the $500,000 profit. If this proposal is put in place, that company would not be able to deduct the $1 million of import costs, so it would pay the lower 20% tax, but on $1.5 million instead of $500,000.

Given the volume and cost of imported cars into the U.S., it’s little wonder that the automotive industry is making a big push for Congress to rethink this tactic.

The American International Automobile Dealers Association — a trade group that lobbies lawmakers on behalf of some 9,500 U.S. car dealers — has called on its members to pen letters to legislators, arguing that automaking is an inherently international industry, so taxing imports is going to drive up the cost of vehicles regardless of where they are assembled.

“Auto parts would be subject to a BAT, so even the most American-made vehicle sold in the U.S. today – the Toyota Camry – would be subject to a significant price increase,” writes AIADA. “Rising prices will drive away regular Americans looking for a new car and, as a result, vehicle demand will drop. Both American auto manufacturing plants and retailers like you will feel the pain, and be forced to shed jobs.”

Speaking of Toyota, while the company does assemble a significant number of vehicles in the U.S., it still imports about half of the 2.4 million units it sells in America each year.

Jim Lentz, CEO of Toyota North America tells Reuters that “Cost is going to go up, as a result demand is going to go down. As a result, we’re not going to able to employ as many as people as we do today. That’s my biggest fear.”

The carmaker recently urged its network of 1,500 dealers to put pressure on the House Ways and Means Committee to not move forward with the import tax.

Reuters also notes that two major retailer — Best Buy and Target — have recently launched efforts to shut down this tax before it goes on the books.

Target CEO Brian Cornell actually met with members of the Ways and Means Committee, says Reuters. They discussed how a border tax would affect the cost of essential household goods, like baby supplies, that are imported.

Meanwhile, Best Buy has been making the case to members of Congress that the border tax would not only hurt U.S. retailers but would be a boon to overseas online merchants like Alibaba that ship directly to consumers.