While the can do Texas spirit of independence is something we all love about the Lone Star State, in reality we can’t operate successfully without strong national and global economies.
During this particularly precarious time in politics, we are depending on the right policies to be generated out of the nation’s capital. Unfortunately, Congress using the opportunity for tax reform to propose a cleverly disguised policy that is essentially a consumer tax that will harm Texas businesses and consumers.
This proposed policy – the Border Adjustment Tax (BAT) - is a 20 percent tax on imports from other countries, while providing exporters with a tax credit.
Essentially, most any U.S. businesses that import from overseas or from Mexico will be taxed on each and every item that is imported.
At a time when Dallas’ economy is booming, the BAT would thwart economic progress and harm lower and middle-class consumers the most. The BAT would threaten our low unemployment rate of 4.3 percent and our extraordinarily strong job growth, not to mention the 2.4 million small businesses and accompanying 4.4 million jobs in our state. As small businesses face higher costs on their imported goods, they will be pressured to pass the costs along to consumers, in addition to potentially laying off employees to cut costs.
This would be coupled with a large financial impact on lower and middle-class consumers, who are already strapped for cash.
In particular, the BAT threatens Texas’ uniquely important relationship with Mexico, which has been the cornerstone of our state’s economy for decades. Of our state’s imports, 35 percent comes from Mexico. Besides the direct impact of the rising cost of these imports, there could be an indirect impact on exports. If we tax imports from Mexico, Mexico may feel the need to do the same to the U.S., which could also harm our state’s exporters - $92.7 billion which goes to Mexico. However you slice it, the BAT will damage this critical trade relationship, putting our growing economy at risk.
As a Dallas business owner, I can’t think of anything worse for our economy, as this policy will affect a majority of our small businesses. By way of example, customers of our dealerships, including Toyota and Nissan stores, will be gravely impacted, as will other automobile dealerships around the state. Before a Toyota Tundra or Tacoma hits our showroom floor, even before it gets assembled at the Toyota San Antonio truck plant, that car has gone through a truly global supply chain. Parts are made in other countries and shipped to the United States, for American workers to expertly craft into the quality vehicles we expect from the “Made in America” label. This system allows automakers and auto dealers companies to keep jobs in Texas while keeping costs low to consumers.
The BAT threatens this cycle.
A recent Baum & Associates study estimated that Ford prices could increase by $300, while the cost of a Volkswagen could increase by as much as $6,800. While politicians in Washington say the Border Adjustment Tax targets foreigners and forces companies to make goods in the U.S., it is really a tax on lower and middle-class Americans who will pay more for the essentials they need not just at a car dealership but at Wal-Mart and the Exxon Mobil station, too.
In Texas, we are blessed with the size and economic freedom to create innovative businesses that benefit the entirety of our great state. Policymakers will never get this moment in time back for pro-growth tax reform. The entire state of Texas is relying on them to make the right decision to drop the BAT, which means more opportunity for economic growth and affordable living for Texas’ consumers.
McLarty is former CEO of RML Automotive, a retail automobile holding company with 25 dealerships in eight states, including many in North Texas. He is also a co-founder and co-president of Dallas-based McLarty Capital, an investment firm providing capital to small to medium sized businesses.