WASHINGTON – In the first six months of 2017, Best Buy spent $1.71 million lobbying, twice as much as it spent the entire year in 2016. Target Corp. spent $1.48 million lobbying from January through June 2017, only slightly less than it spent all of last year.
The numbers, drawn from government records, show the Minnesota companies’ determination to kill a border adjustment tax on imports that House Republicans made a centerpiece of their Better Way tax reform plan.
In a memorable bout of political muscle-flexing, the nation’s retail industry “took a $5 trillion tax hike [over 10 years] and defeated it with a few million dollars worth of advocacy expenditures,” said David French, vice president of government relations for the National Retail Federation (NRF), which spent $7.3 million lobbying in the first six months of 2017, more than it did in all of 2016.
On July 27, Speaker of the House Paul Ryan, R-Wis., and Senate Majority Leader Mitch McConnell, R-Ky., joined Trump administration officials to announce that they had “set aside” the border adjustment tax to concentrate on other kinds of tax reforms.
“Interest groups now play a much more important role in determining what is and is not on the agenda,” said Steve Billet, a former AT&T lobbyist now teaching at George Washington University. Still, Billet said he was surprised at “the willingness of the Speaker to roll over on this. … This was an important component of tax reform that he gave up fast.”
Border adjustment would require American importers to pay taxes on the sales of their foreign-made inventory, but would not allow them to deduct the cost of that inventory. This would increase what American companies must pay the government on imports by up to 20 percent. Meanwhile, the GOP plan would not tax U.S. companies’ earnings on exports.
Some Republicans touted the border adjustment tax as a buy-American initiative and a revenue replacement plan that would allow them to cut the U.S. corporate tax rate from 35 percent to 15 or 20 percent. Because Target imports a “large portion” of its merchandise and because the majority of the electronics Best Buy sells are made abroad, both companies faced potentially ruinous hits to their bottom lines or equally ugly price increases to their customers under the plan.
Asked about Target’s sharp increase in lobbying expenditures, a spokeswoman said that “in recent months our primary focus has been tax reform.”
“While we strongly support meaningful reform,” she said in a statement, “we have been clear in our opposition to the proposed border adjustability tax because it would force American families to pay higher prices on everyday items.”
A Best Buy spokesman said the company is “going to be proactive in making sure that policymakers understand the potential impact to our customers, our employees and our business. We have not been shy about our opposition to a border adjustment tax that would greatly increase the price of everyday products for American families and hurt American jobs.”
Small import-dependent Minnesota companies like Games by James, which sells board and video games, and Madesmart Housewares, which sells products to organize kitchens, bathrooms and offices, also chipped in for what the NRF’s French called “a very effective and cost-effective education campaign.”
Time and again, Games by James President Glenn McKee described to elected officials the impact of the border adjustment tax:
McKee does not import, but his game suppliers do. The tax “was either going to put my suppliers out of business or they would pass the 20 percent cost increase on to me,” McKee said. “A 20 percent price increase was more than my wholesale profit. So I was either going out of business or passing the cost along to my customers.”
Day after day, almost from the beginning of the year, the message was clear: The border adjustment tax would raise consumer prices and kill retail jobs. The secret to beating Congress and the White House was finding the resources necessary for relentless messaging that framed the argument early and often and signaled an unwillingness to compromise. The retail industry never wavered.
“Our goal was to define the issue,” said Joshua Baca, who managed Americans for Affordable Products (AAP), a coalition organized in January by the National Retail Federation and the Retail Industry Leaders Association for the sole purpose of killing the border tax.
AAP eventually grew to include 600 companies and associations. It saw the tax as “an existential issue” for its members, Baca said. If that was the case, there was no room for compromise, even though it meant battling Washington, D.C.’s most powerful players. To do that, the retail industry made its case outside the Beltway as well as inside. AAP staged events in strategic congressional districts. Its representatives met with local legislators. It hosted press calls and churned out news releases on a near-daily basis.
Anytime anyone talked about the border adjustment tax in a way that did not suit the retail industry’s interpretation, “we would correct the record,” said Baca, who once worked for Mitt Romney’s presidential campaign.
“The secret sauce was reminding people that this was a tax on middle class voters,” French explained.
The campaign had to be “relentless and urgent” because some of its leaders miscalculated Americans’ appetite for protectionism.
“It’s no secret that most of the betting money in Washington did not count on a Republican clean sweep and certainly not a Trump win,” French said.
Headed into the election, a consultant who believed that Trump was going to lose told French that there was only a 5 percent chance of a border adjustment tax passing under a President Hillary Clinton.
“Overnight,” said French, “the border adjustment tax went from a 5 percent chance of being passed to an 85 percent chance.”
The fear was not only that the tax would pass but that it also would pass quickly. Tax reform was talked about as a priority of the new administration. Stories swirled that the House Ways and Means Committee, the money committee, might mark up the House tax reform bill as early as February.
Let the lobbying begin
So began one of the most furious and successful lobbying campaigns seen in Washington in recent years.
“Target and Best Buy played a leading role in this,” French said. “They activated their associates. They were working hard to make sure they were heard. The retail industry is very powerful when we align our interests with our customers.”
That’s what the mantra about consumer price increases and lost jobs aimed to do.
Meanwhile, the counterargument by export-heavy giants such as Boeing, GE and Caterpillar, that U.S. companies grow more competitive by adding import taxes and cutting export taxes, got lost in the retailers’ din.
As the Ways and Means Committee talked about studies and phase-ins of the border adjustment plan, the retail industry pushed back hard. After testifying to the committee in May about the harm border adjustment could do to his company and its massive workforce, Target CEO Brian Cornell told the Star Tribune he had no interest in anything but repeal.
In June, 60 business owners, including Devee McNally, CEO of Madesmart, and McKee flew into Washington for a whirlwind of 100 meetings on Capitol Hill.
Members of Congress “want to hear from their constituents,” McKee said. “So I think this made all the difference.”
McKee traveled three times from Minnesota to Capitol Hill during the retailers’ lobbying blitzkrieg.
The cost of the trips turned out to be a tiny fraction of the benefit.
“Lobbying pays off,” said George Washington University’s Billet. “I preach to my students all the time: You put a little money down, you get a lot back.”