Dive Brief:

• Retail executives are banding together to fight a proposed tax on imports that they say will hurt their businesses and their customers, Reuters reports.

• CEOs from Target, Best Buy, Gap, AutoZone and others are heading to Capitol Hill this week to meet with members of Congress and their staffs, though it’s not clear whether they’ll also head to the White House.

• Retailers and retail organizations seem increasingly alarmed at the prospect that a so-called “border adjustment tax,” intended to tax imports but not exports, could become reality in a Trump administration bolstered by a Republican-controlled Congress. 

Dive Insight:

The “border-adjusted tax proposal” floated last summer by Speaker of the House Paul Ryan (R-WI) and touted since then by President Donald Trump could drag down retailer earnings by driving up the cost of imports. The president alluded to the plan as recently as this week, though he has yet to be explicit about his endorsement of the proposal or any other details.

Taxing imports and exempting exports — the nut of the plan — appears to target foreign businesses, but U.S. retailers would be hit hard as well because they depend so much on overseas manufacturing, including apparel, home goods, electronics and other products. That puts them between a rock and a hard place, forced to either raise their prices or — if that approach threatens sales — reduce their profits. Many economists also say such a tax would boost the value of the dollar, which is already hurting many retailers by dampening sales from tourists and raising the cost of production in Asia, which trades using the U.S. dollar.

The proposal is essentially a consumption tax, a notion floated by Republicans for years as a way to make up shortfalls that come from the income tax cuts they also favor, similar to the value-added tax (VAT) imposed in Europe. By definition, a tax on consumption has the effect of curtailing consumer purchasing by raising prices without raising value; at the moment consumer spending is the backbone of the U.S. economy.

“[S]ales to U.S. customers are taxed and sales to foreign customers are exempt, regardless of whether the taxpayer is foreign or domestic,” according to the “A Better Way” document from the Republican House of Representatives, which contains the most comprehensive description of how the proposal would work.

The tax and its effects run “very counter to the way consumers are feeling at the moment,” David French, the National Retail Federation’s senior vice president for government relations, said recently. 

The NRF last week released its economic forecast for 2017, projecting that retail industry sales (excluding automobiles, gas stations and restaurants) will grow between 3.7% and 4.2% over year-ago totals, but warned that prediction relies on a continued stable economic environment.

“Regardless of sentiment, the pace of wage growth and job creation dictate spending,” NRF Chief Economist Jack Kleinhenz said. “Our forecast represents a baseline for the year, but potential fiscal policy changes could impact consumers and the economy. It seems unlikely that businesses will notably increase investment until tax reform and trade policies are well-defined.”