Thanks in part to our state’s pro-business climate, investments in workforce development and the support from economic engines like our state’s port, South Carolina’s economy is growing and our unemployment rate is at a record 16-year low.
Our economy may soon get an additional boost if lawmakers in Washington pass critical pro-growth tax reforms that have been proposed. However, not all tax reform is good reform — in fact, some of these changes would have quite the opposite effect.
One such reform — the Border Adjustment Tax (BAT) — is of great concern and deserves careful examination because of how it would fundamentally change our system of importing and exporting goods through our ports.
Introduced by the leadership in the U.S. House as part of their “Better Way for Tax Reform” plan, their BAT would implement a new 20 percent tax on all imported goods. Projected to raise about $1 trillion over a decade, the government would use that revenue to fund tax breaks on exports and cut income taxes for large corporations.
Supporters of BAT claim the 20 percent tax on imports will discourage businesses from moving overseas and promote domestic-made products. Opponents, however, say the BAT would actually hurt American manufacturing jobs, make our economy less competitive and significantly increase costs for small businesses and families.
A 2015 economic impact study by the University of South Carolina found that the Port of Charleston has a $53 billion annual economic impact on our state, facilitates 187,600 jobs and generates over $912 million in tax revenue each year.
The same report states that $75 billion in goods flows though the Port of Charleston annually, with 60 percent of that activity coming from imports. Adding a 20 percent import tax on goods would undoubtedly have an adverse impact on trade, the negative implications of which wouldn’t be confined just to our port, but would have a ripple effect felt throughout our entire state’s economy.
South Carolina has a large automobile and tire manufacturing industry exporting huge volumes of their products through our port. However, many of the raw materials and parts used to make those products pass through our port first as imports. Under the BAT, those suppliers will no longer be allowed to deduct imported items as a business expense – increasing both their costs and tax burden.
An estimated 97 percent of all clothing and footwear sold in the U.S., and more than 90 percent of electronics, are imported from overseas. If the BAT is implemented, these businesses will have no other choice but to pass this 20 percent price increase onto consumers. South Carolinians would be forced to pay much higher retail prices for these products, as well as many everyday necessities such as gasoline, groceries, medicine and more. According to Americans for Affordable Products, the BAT would cost the average family an additional $1,700 per year.
Ultimately, a BAT would represent a complicated and radical change in the way our manufacturing, retail and shipping industries operate in the global economy. While the national benefits of a BAT are uncertain, the potential economic harm it would cause to our port and our entire state’s economy is undeniable and cause for great concern.
Denver Merrill is president of the Maritime Association of S.C., a nonprofit trade association whose mission is to promote, protect and advance the interests of our state’s ports and the commercial maritime sector.