As corporate America prepares for the possible implications of a border adjustment tax, Kohl’s CEO warned that his company’s tax rate could surge as much as 85 percent and consumers could pay much more for the things they buy.
“The calculus on that — probably 75 percent to 85 percent is probably about right for us,” the department store’s chief, Kevin Mansell, said on CNBC’s “Power Lunch.”
Currently, the corporate tax rate stands at about 35 percent, but the border adjustment tax that House Republicans are advocating would tax imports in a move aimed at discouraging imports to the U.S. and bolstering U.S. manufacturing. Such a levy would drive the total tax paid for import-heavy companies, such as retailers, considerably higher.
“Over time, I’m sure we’ll figure ways to navigate through higher tax rates,” he said. “It is a bad thing for our P&L for sure. But the pricing impact for customers, to me, is what is harmful.”
Mansell is especially laser-focused on the impact to consumers because any potential price hike that the chain must pass on to its customers would negatively hit their demand for the company’s items.
He described the potential impact on customers as “massive,” and said some of the proposals would include a price hike of 20 percent to 25 percent.
“We’ve seen price increases in our categories before,” he said. “We’ve had areas of time and periods of time where cotton prices, for instance, spiked and we have had to pass it on. There is a correlation to demand when it happens.”
Kohl’s is far from alone among retailers in expecting a massive tax hit from a border adjustment tax. Target warned that its tax rate would rise more than 75 percent, while J.C. Penney forecast a jump of more than 170 percent.