Since the raucous election, no issue has raised more questions or caused more concern for the Toy Industry Association (TIA) and our members than the possibility of significant tariffs being placed on imported products – as well as the potential for a trade war with China. Indeed, last week at TIA’s annual External Affairs Strategy Meeting, a considerable amount of time was dedicated by member companies in attendance to the potential impacts of tax, trade and tariffs in 2017. Accordingly, I want to devote this year-end President’s Letter to an analysis of the issues that could be critical to your company and the entire business of toys in the New Year.
Background
House Speaker Paul Ryan introduced a corporate tax reform proposal this past summer which included a provision called the “Border Adjustment Tax” (BAT). The BAT was pitched by the Speaker and others in House Republican leadership as an alternative to the import tariffs proposed by President-elect Donald Trump during the campaign. In fact, just this week Republican Rep. Kevin Brady of Texas, chairman of the House Ways and Means Committee, emphatically said the portion of the tax plan that would place taxes on imports and would not tax exports is “going to stay.”
A Border Adjustment Tax would move the tax system from one based on location of profits or a company’s headquarters to one that is based on the location of sales. Practically, this would mean that import-intensive businesses like U.S. toy companies would no longer be able to deduct the cost of imported goods sold from their net taxable profit.
While economists and tax professionals are still mired in debate and discussion, the radical change to the corporate tax structure could potentially have a significant negative impact on the toy industry – an industry that supports high-quality jobs here in the U.S. to import toys manufactured overseas. In fact, 61 cents of every dollar spent on toy production is spent here in the U.S.
2017 Outlook
Tax reform is one of the top issues to be picked up by Congress at the start of next year. The proposal is being considered seriously in the key House committee and policymakers are spending a significant amount of time learning from stakeholders and economists about how this proposal will benefit or impact companies and the U.S. economy. While representatives are hearing the concerns, momentum is going in the wrong direction (for us), as it fits in with current rhetoric to bring manufacturing back to the U.S.  However, the U.S. toy industry was never an industry that wholly relied on U.S. manufacturing.  The U.S. toy industry built upon U.S. companies and valuable jobs to design, engineer, market, and ensure the quality of the 3 billion toys sold in the U.S. every year.    
                                                                                ——Data from:TIA news