As a result companies would no longer be able to deduct the cost of imported goods from profits.
Lawmakers are currently considering a proposed tax that could hit toy companies particularly hard.
The proposal, still in its early stages, would lower the income tax rate to 20%.
This could be an issue for American toy companies whose largest customer base is on home soil, but who manufacture most or all of their products overseas.
Under the current tax laws, the company deducts the import and domestic expenses and pays 35% tax but only on $500,000 profit. If the proposal is put in place, that company would not be able to deduct the $1 million of import costs, so it would pay the lower 20% tax but on $1.5 million instead of $500,000.
Mattel and Hasbro, two of the largest toy companies in the US, earn about half of their revenue from US sales. However, they have to import nearly all of those products because the cost of manufacturing domestically is too high.
The CEO of MGA Entertainment said that moving production to the US would result in prices that are three times higher than they are now.
Supporters of the proposal maintain that companies are not taking into the account that the plan will result in a more valuable dollar and economic growth.
US toymakers, however, remain skeptical.“No recent issue has raised more questions or caused more concern for the Toy Industry Association (TIA) and our members than the possibility of the new Administration and Congress raising tariffs on imported products – as well as the potential for a trade war with China,” said Steve Pasierb, TIA president. He did acknowledge that there could be financial benefits.
Steve Pasierb argued that the tax change could “take away children’s happy birthdays, steal Christmas and destroy quality US-based jobs. No one wants to have to explain to their children why Santa was put out of work.”