Today marks an unfortunate milestone for American companies: $1 billion in taxes paid because of Congress’ failure to renew GSP. Obviously, these costs were not incurred overnight. It’s the cumulative effect of 540 days without GSP – with an average daily cost of $1.85 million in new taxes. Nearly 18 months of expiration, far surpassing the previous GSP expiration “record.” For many, death by a thousand paper cuts.
Those new taxes affect companies in every state. Here are the taxes paid by state through November 2014. Companies in 43 states are estimated to have paid $1 million or more to date. California importers pay about 15 percent of all GSP taxes, so they have the most to gain from retroactive renewal in terms of actual dollars refunded. But the impacts are no less for smaller states: Rhode Island pays the highest average import taxes because of GSP expiration at 7.1 percent
So who exactly is harmed by expiration? More than 660 American companies and associations have urged Congress to renew GSP. Since GSP expired and many companies were hit with unexpected tax bills, about 4 to 5 new organizations per week have come out in support of renewing GSP. Even that growing list of companies is just the tip of the iceberg, as we learned back in July 2014.
Some on the list are recognizable to everyone – Coca Cola, General Electric, The Home Depot – but most are not: 80 percent of those urging renewal are small businesses with 100 or less employees. Small businesses accounted for 60 percent of GSP savings in 2012, so it’s likely they have paid at least $500 million in direct taxes because of GSP expiration. (No public data exist on GSP savings/tax payments for individual companies, but hundreds have provided that information to use when signing up for the supporter list.)
Those with the greatest stake are often these small- and medium-sized businesses. One privately owned company with 130 employees has paid more than $7 million in higher taxes since GSP expired, more than any other company we know. Those taxes have prevented the company from moving ahead with new US manufacturing plans or a building expansion – both of which would allow it to hire more employees. Put simply, GSP expiration is costing jobs. And theirs is one of the more “positive” stories of dealing with expiration.
A survey conducted last August showed the toll GSP expiration is taking on many individual companies:
- Matrix Metals laid off 75 manufacturing workers in Iowa.
- Small business owners Danny and Candace Abitbul from Sophia Foods in New York laid off 2 workers and canceled expansion plans that would double their business.
- Instead of hiring a new worker, Stackhouse Athletic in Oregon instead had to cut health insurance for its 9 employees.
- B&C Technologies in Florida bought a building to start manufacturing in the United States, but cannot afford to get it up and running because of the new taxes.
These unfortunate stories were all too common: about 1 in 8 companies laid off workers as a direct result of GSP expiration; nearly half delayed (otherwise) needed hires; and 40 percent canceled investments that would create jobs at their company or local suppliers. Since the typical company urging GSP renewal has just 15 employees – the difference between growing or contracting by just 1 or 2 workers can be huge.
Sometimes it is more tragic: as we wrote about yesterday, one family-owned business started by a husband and wife team was forced to sell the rights to the company name and assets after their bank called in the loan. GSP taxes – even if they were to be refunded eventually – meant the company was losing money. They are also not alone. Another company we’ve worked told us in December that the bank will no longer extend them credit. They expect to run out of money by the end of March and may be forced out of business if Congress doesn’t renew GSP retroactively before then.
For the American companies that import under GSP, the $1 billion tax hike has been terrible. It’s been 18 long months without knowing whether the products they purchase today will be subject to higher taxes when they arrive. It’s been 18 long months of uncertainty about whether the hundreds, thousands, or millions of dollars in taxes paid will be refunded or lost forever. It’s been 18 long months of asking customers, suppliers, creditors, and employees to keep the faith that GSP will be renewed. Eventually. They just need to trust Congress.
Well now it’s time for Congress to act. To pass an immediate, retroactive GSP renewal so that American companies can get their money back and try to undo as much of the damage from the last 18 months as possible.