Tax reform may be coming to Congress

April 17, 2017

Image: Gexydaf

Tax reform is always a great talking point for political candidates on the campaign trail. After all, the tax code is overly complex, burdensome to many, and seemingly in need of improvement (something policymakers from all sides of the political spectrum agree on). Also, voters are never happy about paying taxes, so it’s an easy and effective talking point to them.

Congress hasn’t comprehensively reformed the code since 1986 when President Reagan signed the Tax Reform Act into law. This legislation was sponsored by Rep. Richard Gephardt (D-MO) and Sen. Bill Bradley (D-NJ), both of whom are long retired from Congress. Since then, many policymakers have promised new comprehensive reforms—from lowering tax rates to simplifying tax deductions—and none have been able to deliver on that promise.

Once again, policymakers are prioritizing comprehensive tax reform, and this time it may have a real impact on the bike industry. 

Why the bike industry should pay attention

House Republicans, who seem to be leading the charge on tax reform, have proposed a “border adjustment tax,” commonly known as BAT, as part of their broader tax reform package. Under this proposal, bicycles and bicycle parts that are imported could be subject to significant tax increases. Here is how it might work:

  • Under current law, someone selling an imported product can deduct the cost of the product on their taxes. They are only taxed on the profit. For example, if they are selling a $110 product (including a $10 profit margin), they are only taxed on the $10 profit of that sale, not the $100 cost of the product.
  • Under the new law, the seller would be taxed on the full $110—both the cost of the product and the profit.

House Republicans have also proposed lowering the corporate tax rate from 34-35 percent to 20 percent for C corps and 25 percent for S corps.  While this would provide welcome relief to companies within our industry, it likely wouldn’t resolve the problems associated with implementation of a BAT.  In the example above, a 20 percent tax rate would still result in $22 in taxes, which is larger than the profit.  Republicans would argue that the strengthening of the dollar under this proposal would more than compensate for this net loss; others question those economics.    

Of course, the BAT and reductions in corporate taxes are only proposals and the details are not yet available. The Senate has expressed concern with the BAT proposal, conservative members of the Republican Caucus oppose the plan and President Trump has yet to endorse it. It’s far from a done deal. 

Almost all bicycles and bicycle parts are imported, so the industry should be concerned and pay close attention to any proposal that would increase the cost of these items.

PeopleForBikes has already attended numerous meeting about the BAT on Capitol Hill, joined coalitions opposing it, and will stay vigilant on the issue. We are working closely with the Bicycle Product Suppliers Association and the National Bicycle Dealers Association to position the bike industry within the larger debate.

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