demand for foreign goods decreased,
lowering the relative cost of imports
to a degree that would offset any
increased tax burden from the BAT.
But retailers are having none of
it, refusing to peg their hopes for
relief on an abstract and, some say,
antiquated economic theory that
may not materialize or take years to
materialize and assumes that trade
flows still determine currency rates.
Moreover, any further appreciation of
the dollar from current levels would
dampen domestic tourism, on which
so many higher end retailers depend.
If a BAT is intended to encourage
domestic production and discourage
imports, it will not likely have
much success in the retail and
consumer products sector, where
the production of low-tech, labor-
intensive products left U.S. shores
a while ago and isn’t likely coming
back. For instance, wage costs
of textile and apparel workers in
Vietnam are one-quarter that of their
U.S. counterparts, according to the
International Labour Organization,
while in China it’s one-third. A BAT
would hardly be enough incentive
to encourage this production to
return home. Rather, it would
merely be punitive to those who
sell and consume these products.
Keystone to Tax Reform?
Recently there has been more talk of
adjusting the BAT or other aspects
of corporate tax reform that would
deviate from the House blueprint,
including the possible exemption
of certain goods from a BAT and/
or reduced tax relief. Some pundits
currently give the BAT a less than
50 percent probability of making
its way into tax reform legislation.
But key House Republicans on the
Ways and Means Committee insist
that a BAT must be incorporated—that
tax reform will not occur without it.
In the absence of a BAT, corporate
tax reform cannot even pretend to be
revenue neutral and wouldn’t pass
muster with congressional deficit
hawks. Consequently, the entirety
of tax reform legislation may hinge
on the divisive issue of a BAT.
The views expressed herein are those
of the authors and not necessarily
the views of FTI Consulting Inc.,
its management, subsidiaries,
affiliates, or other professionals.
FTI Consulting Inc., including
its subsidiaries and affiliates, is a
consulting firm and is not a certified
public accounting firm or a law firm.
1 While we leave technical tax commentary
to others, our focus is to shed light on the
potential industry impact for retailers.
Tamara McGrath is a senior
managing director at FTI
Consulting and is based in Los
Angeles. She is a member of the
Corporate Finance & Restructuring
segment. For over 18 years, McGrath
has provided expert testimony in
complex accounting matters and
advisory services in restructuring
settings to creditor committees,
companies, lenders, and equity
holders. Her industry experience
includes retail, for-profit education,
energy, biofuel, financial services,
technology, healthcare, agriculture,
manufacturing, and real estate.
Amir Agam is a senior managing
director at FTI Consulting and
is based in Los Angeles. He
is a member of the Corporate
Finance & Restructuring segment.
Agam has more than 17 years of
experience advising companies,
creditors, and equity holders
undergoing significant transitions.
His expertise includes post-acquisition operational changes;
finance, accounting, and financial
planning and analysis; structure
realignment; and restructurings
and interim management.
John Yozzo is a managing director
at FTI Consulting and is based
in New York. Yozzo is a member
of the Corporate Finance &
Restructuring segment. He’s been
a coordinating editor of the ABI
Journal for more than a decade,
writing numerous articles on
restructuring and the U.S. retail
sector, including FTI Consulting’s
annual Holiday Retail Report
and U.S. Online Retail Forecast.
Yozzo is also a member of the
editorial board of the FTI Journal.
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