NRF Asks House to Reject VAT and National Retail Sales Tax
WASHINGTON, July 26, 2011 – The National Retail Federation today urged a congressional committee to reject proposals for a jobs-killing National Retail Sales Tax or an equally-damaging Value Added Tax and instead focus on reform of the existing income tax system in order to boost job creation.
“Members of the National Retail Federation believe that the most important aspect of any tax reform measure is its impact on the economy and jobs,” NRF Vice President and Tax Counsel Rachelle Bernstein said. “Replacing our current tax system with a consumption tax would present an unnecessary risk to our economy. NRF believes that a reform of the income tax, by providing a broad base and low rates, would bring the greatest economic efficiency and would stimulate economic growth without causing the economic dislocations inherent in the transition to a new tax system.”
Bernstein’s comments came in written testimony submitted to the House Ways and Means Committee, which is hold a hearing this morning on proposals for a National Retail Sales Tax, VAT and other forms of consumption taxes as part of its ongoing series of hearings on federal tax reform options.
A Sears executive testified on behalf of NRF before the committee last month, telling lawmakers retailers support income tax reform that would “broaden the base” by repealing most corporate tax breaks in return for lower corporate rates. Since retailers receive few such breaks, the industry would see a tax reduction NRF believes would be passed along in the form of lower prices for consumers. That, in turn, would increase retail sales and lead to job creation among both retailers and their vendors and suppliers.
Today, the panel is scheduled to hear from two panels, one on the Fair Tax Act national sales tax proposal and the other on proposals to create a nationwide VAT. Bernstein said either would drive up prices for consumers, negatively impact the economy and reduce employment.
“The United States should not experiment with a brand new tax system that will put our economic future at risk,” she said. “In addition to the overall impact of consumption taxes on the economy, retailers are particularly concerned with the impact of consumption taxes on our customers. Consumption taxes are highly regressive and will raise the tax burden on lower- and middle-income Americans.”
The Fair Tax Act, pushed in Congress for more than a decade, would abolish the Internal Revenue Service and replace the federal income tax with a national sales tax. Supporters cite the rate as 23 percent, but it would actually be 30 percent when calculated the same as current state or local sales taxes, and economists have said an even higher figure would be needed to fully replace current tax revenue.
NRF has fought the proposal for years because of the impact the huge tax would have on retail sales. Bernstein cited a PricewaterhouseCoopers study commissioned by NRF when the plan was first proposed in 2000 that found it would bring a three-year decline in the economy, a four-year decline in employment and an eight-year decline in consumer spending.
The Fair Tax was rejected in 2005 by former President George Bush’s Advisory Panel on Tax Reform, with members saying the tax would place too great a burden on lower- and middle-income Americans. The advisory panel cited Treasury Department estimates that a rate of 34 percent could be needed if applied to all goods and services in the economy, including health care and new home purchases, and as high as 64 to 89 percent if exemptions were made similar to those made for state sales taxes.
Bernstein also cited a 2010 Ernst and Young study on the macroeconomic impact of a VAT commissioned by NRF, which found that adding a VAT to the current tax system would cause the loss of 850,000 jobs in the first year alone, reduce GDP for three years and reduce retail spending by $2.5 trillion over the first 10 years. Among the witnesses on today’s VAT panel is Ernst and Young economist Robert Carroll, chief author of the study.
As the world’s largest retail trade association and the voice of retail worldwide, NRF’s global membership includes retailers of all sizes, formats and channels of distribution as well as chain restaurants and industry partners from the United States and more than 45 countries abroad. In the United States, NRF represents an industry that includes more than 3.6 million establishments and which directly and indirectly accounts for 42 million jobs – one in four U.S. jobs. The total U.S. GDP impact of retail is $2.5 trillion annually, and retail is a daily barometer of the health of the nation’s economy. www.nrf.com.