Small Business Owners Worry About Potential Import Tax Changes

Smaller companies could be vulnerable due to a lack of domestic manufacturing capabilities, among other factors.

A proposed change to tax deductions for imports could force small businesses to cut jobs or cease operations altogether, several business owners warned this week. 
The Wall Street Journal discussed the proposal, known as border adjustment, with several business leaders worried about the future of their companies.  
Border adjustment would exempt exports while preventing the deduction of imports as business costs — and effectively raise taxes for companies that largely depend on imported materials. 
A calculation by the Journal showed a hypothetical tax bill rising from $17,500 under the current system to $50,000 under border adjustment and other factors. 
The plan, currently under consideration in Congress as part of a larger tax overhaul, would affect larger companies as well, but small companies could be particularly vulnerable due to a lack of domestic manufacturing capabilities, leverage with suppliers or scale with customers. 

Supporters countered that a subsequent increase in the dollar would make imports cheap enough to offset any tax bill increase. Small manufacturers that often compete with cheaper imports could also benefit. 
A strong dollar, however, causes problems for U.S. companies whose goods become more expensive in foreign markets. 
The Journal noted that border adjustment is broadly supported by House Republicans in order to generate about $1 trillion over ten years — and offset planned reductions in individual and corporate tax rates. 
The Trump administration reportedly signaled a willingness to consider the proposal if incorporated into a proposal that would fund a massive, expensive wall along the southern border. 

Rep. Tom Reed, R-N.Y., told the Journal that although his GOP colleagues generally support the effort, lawmakers are considering ways to ensure small businesses can survive border adjustment, including potential "safe harbors" in which they could choose between the new and old systems. 
"This is a once-in-a-generation opportunity," Reed told the paper. "If we don’t take care of everybody, you’re not going to have an opportunity to do it down the road."

More in Supply Chain