FMI Opens the Conversation on Taxes, Credit-Card Fees With Congress

As FMI–The Food Industry Association advocated for key policy issues affecting the grocery industry—including tax codes, credit-card interchange fees and direct and indirect remuneration fees at pharmacy—during the virtual “Day in Washington” event April 21, the ultimate goal was education.

“When you're at the beginning of a Congress, like we are now, and you have a lot of new members, it's really important for not only FMI but our member companies to go and talk to them and really help educate them about the industry,” Andy Harig, VP of tax, trade, sustainability and policy for FMI, told WGB. “If they don't understand the issues … they are going to make bad decisions on policy. And that's going to be the industry who is to blame for it, because we have not done our job of helping them understand what our business model looks like every day.”

Part of that is ensuring members of Congress understand that grocery operates on a 1% and 2% profit margin, so taxes, credit-card interchange fees and the like affect these operators differently than companies with higher profit margins.

“If you've got a 40% net profit, taxes are probably less important to how you make business decisions, [whereas] 1% or 2%, that strikes right at your economic bottom line,” Harig said. “Money that goes to government is money not reinvested in the stores. So that’s really important to understand too.”

The Issues: Taxes

Tax is an issue FMI brings up to Congress on a yearly basis. And although Harig said “right now I think we're in a good place on taxes”—partly because of the Tax Cuts and Jobs Act, which he said was effective at creating jobs and raising wages—“we're worried that big sharp increases in taxes will take away from some of that and make recovery [from the COVID-19 pandemic] a little bit harder and just create a less friendly business environment for our members.”

“When COVID started and we were putting technology into the field really quickly when we were expanding workforces, it was helpful that we had those tax cuts in place, and we were reaping some of the benefits of that,” Harig said. “We'd love to see that continue.”

Something FMI is keeping an eye on is President Joe Biden’s $2 trillion infrastructure and jobs package, which the president hopes to fund by raising the corporate tax rate to 28%.

“We'd love to see infrastructure investments. We just really want to work with them to figure out how we pay for them, how we pay for them in a way that doesn't hurt our industry, and then ultimately, that doesn't flow down to the consumer and impact their bottom line,” Harig said. “I want to make sure that prices stay low, that their options in terms of choice of both the product on the shelf and the stores they shop in stay high. If you have a big sharp increase in taxes, that's going to make that harder.”

The Issues: Credit-Card Interchange Fees

Also a perennial issue for FMI and the food industry is credit-card interchange fees, which Harig said is almost always on the top five of its members’ expense lists.

“With the new Congress, you always have new opportunities to develop new allies, reeducate people, educate them on what this issue means and explore new ideas,” he said.

And while the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 addressed interchange fees on the debit side, credit fees are used more broadly and not regulated. And the problem has only heightened with COVID.

“No one wanted to handle cash during the COVID crisis … so they used their credit cards even more broadly than they did. So these fees are really adding up,” Harig said. “They're not really negotiable; they're not driven by market forces. It's a virtual monopoly, or at least an oligopoly, where the credit-card companies really have all the bargaining power.”

Harig said FMI would like to work with Congress to see is there a way to develop legislation that addresses the credit side of the equation—to see if there's a way to “create a level playing field.”

“We really wanted to address this with the card companies themselves and see if we can work out solutions, but it hasn't ever happened. And so this is our sort of court of last resort,” he said.

The Issues: Reform of DIR Fees

The reform of direct and indirect remuneration (DIR) fees—fees billed by pharmacy benefit managers (PBMs) to pharmacies for additional charges after prescriptions are purchased by patients—was also a hot topic for FMI on April 21. “We have a tough time really understanding where our margins are going to be because of that, because essentially a month after the fact, you could be dealing with a different set of numbers based upon the formulas that the PBMs provide vs. when you would dispense the drug,” Harig said.

This, he said, has led to pharmacies struggling to make money or break even, with some ultimately shuttering their doors.

“It has real impacts on service, in particularly rural communities, underserved communities in cities, where there may only be one or two pharmacies that are in walking distance or driving distance. Then, if those go out of business, you've got a long commute to get your drugs,” Harig continued. “It's a challenging issue. It's caught up in larger reform of PBMs … but for our members with pharmacies, this is a really big deal.

About 12,000 of FMI’s members have pharmacies.

Policy Over Politics

Harig compares the annual “Day in Washington” event to “opening day of the season in baseball,” in which the first game sets the stage for the season. But in the case of policy, this event sets the stage for FMI to be a resource for Congress.

“What's most important is we've started that education process. We've put names to the businesses that a lot of these Congress people shop at,” he said. “So from there, once we set the scramble, really start building it up … where we're going to just continue to go in, talk about these issues, provide them with good data when they ask questions, come back and make sure we're giving them the best information we have and providing that to them. …

“In an ideal world, if we do our job really, really well, they start to understand when they hear this policy has been proposed, they start to have a sense of, ‘Hey, I think this is going to impact my grocers in this way based upon everything they've told me in the past.’ ” he continued. “At FMI, we've got a long history of being bi-partisan. We work with Democrats, we've worked with Republicans. We're really more about policy than politics. And our goal here is always to be that trusted source of information for people: help them understand what we do, help them get that grasp on the business model.”