• Associations representing the US apparel and textile retailers and manufacturers are continuing to endorse an overhaul of the US tax code, expressing only limited concerns as details solidify.
  • But while the mood in the sector remains mainly optimistic, executives are shying away from proposed changes to individual tax rates, warning some taxpayers could draw the short stick.
Members of the US Senate reconvened this week after the Thanksgiving break to vote on what would be the most sweeping revisions to the US tax code since the presidency of Ronald Reagan

Members of the US Senate reconvened this week after the Thanksgiving break to vote on what would be the most sweeping revisions to the US tax code since the presidency of Ronald Reagan

With a final vote on US tax reform proposals expected this week, we take a look at why the package finally gives US textile and apparel industries something to cheer about under the Trump administration.

The US clothing industry, reliant on free trading, has not had much welcome from the populist policies of the administration of President Donald Trump and his Republican allies in the Congress.

The sector has helped see off plans to impose a border adjustment tax (BAT), which would have crippled importers and is currently lobbying for a successful outcome to the decision to renegotiate the North American Free Trade Agreement (NAFTA).

However, the United States apparel and textile industries may have, in the shape of the current tax reform proposals, finally found some Trump-backed economic legislation they can support. With some reservations.

Members of the US Senate reconvened this week after the Thanksgiving break to vote on what would be the most sweeping revisions to the US tax code since the presidency of Ronald Reagan.

A companion bill has already passed muster by the full House of Representatives, and with the approval of a Senate version of the bill by its finance committee, a vote is expected by the full body shortly after the gavel is lowered.

US retailers buoyed by progress on tax reform

Both the House and Senate measures are broadly similar – lowering the top corporate income tax bracket to 20%, from 35%, while eliminating many deductions for both companies and individuals – meaning the bills could be quickly reconciled in conference, enabling President Donald Trump to deliver on his promise of a "tax cut for Christmas."

Although its passage is probably in the offing, the Republicans hold only a two-vote margin in the upper house, leaving them little wriggle room for defectors – a distinct possibility given the contentious nature of the debate and the fact that the Senate bill, as currently written, would include a repeal of the mandates underpinning the Affordable Care Act passed by the Democrats under President Barack Obama.

But with the prospect of tax cuts, US business interests are providing a tailwind for the legislation, and apparel is proving no exception, with companies and industry groups following the legislation closely while expressing only limited concerns as details solidify.

Overhaul is "long overdue"

Details notwithstanding, Stephen Lamar, the American Apparel & Footwear Association (AAFA) executive vice president, says: "The broad message of this language is that they're reducing rates and when you reduce rates, you should reduce your burden, so the tax rate should go down."

However, he cautions at the same time that many of the bill's proposed structural changes to the tax system would make its longer-term effects harder to determine. "It's hard to predict where this is going to end up."

Thomas Crockett, director, government and regulatory affairs at Footwear Distributors & Retailers of America (FDRA), says he is also among the industry professionals who are "watching this very closely" as "it's got very company-specific implications."

"The FDRA supports tax reform that will grow our economy, make American footwear companies more competitive and strengthen footwear jobs," he says. "There are a number of provisions in both the House and Senate bills that will help achieve these goals, such as establishing a much more competitive rate and making this rate permanent and allowing companies to reinvest foreign earnings through repatriation."

"We support these key components of tax reform, but we recognise that there are provisions that impact members of our industry in different ways."

Lloyd Wood, director of public affairs at the National Council of Textile Organizations (NCTO) also expresses his group's "strong support for the effort underway to pass comprehensive tax reform."

He says NCTO "agrees with President Trump and the congressional leadership that prudent tax reforms can make US manufacturing more competitive, and that an overhaul of the US tax code, not significantly reformed since 1986, is long overdue."

But in endorsing the tax bills from a business standpoint, Wood is quick to disavow any stance on the part of his group toward proposed changes to individual tax rates, which would apparently leave at least some taxpayers drawing the short stick.

"As a trade association representing US textile manufacturing, the NCTO takes no position on any proposed changes to the taxation of personal income," he says. "With respect to the taxation of business and related assets, however, the NCTO strongly supports a reduction in the US corporate tax rate as well as reforms that would allow for a quicker, if not immediate, expensing of capital investment. Both of these reforms would boost US textile manufacturing in an intensely competitive global marketplace."

National Retail Federation (NRF) president and CEO Matthew Shay says: "Tax reform is the key to increased prosperity that small businesses, large employers and middle-class workers have all been waiting for more than a generation." In a statement, he notes: "This is about jobs, wages and America's future."

Consumption concerns

But whatever the legislation's impact on jobs and wages, the bill to be considered by Senators as they come back to Washington DC from overeating and fundraising in their home states will also alter tax rates for every individual.

According to a 2 November report by the non-partisan Tax Policy Center, while the tax-paying population on average would see reductions in 2019 from the reforms, 9% would see higher taxes that year than under current law. By 2027, that proportion would grow to 50% because the personal tax cuts in the bill are set to expire in 2026.

"One of the things I've been concerned about would be the impact on consumption," Robert Antoshak, managing director of Olah, a New York textile and apparel development and marketing firm, says of the proposed changes to individual tax brackets.

"It sounds like portions of the consumer population are going to lose out, particularly the lower middle class, which is responsible for much of our consumption," he says, falling short of catastrophic pronouncement. "Whatever they do, this won't end the consumption of textiles."

On the other hand, Antoshak understands the appeal of the proposed legislation among many of the companies with which he works. "Look at corporate taxes," he says. "A lot of the folks I work with are of course interested in that. It's got some advantages for companies as well as disadvantages."