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June 2, 2011 - NRF Urges Congress to Focus on Jobs During Tax Reform Debate

A senior executive from Sears testified on behalf of NRF during a congressional hearing on tax reform today, saying lawmakers should focus on tax policy that supports job creation and the economy and avoid creation of a VAT or other consumption taxes.

“Sears Holdings and other members of NRF believe that the most important aspect of any tax reform measure is its impact on the economy and jobs,” Sears Holding Corporation Vice President for Tax James Misplon said. “It is vitally important that any tax reform measure do no harm to our economy.”

“We support tax reform that would broaden the income tax base and lower the income tax rates,” Misplon said. “The elimination of many special deductions and credits in exchange for lower rates will bring about a more economically efficient tax system that is simpler for taxpayers and will ease enforcement.”

Misplon testified before the House Ways and Means Committee this morning during a hearing on how corporate tax reform can encourage job creation. Sears Holdings Corporation – the parent of Sears, Roebuck and Co., Kmart and Lands’ End – is an NRF member and Misplon chairs the NRF Taxation Committee.

The hearing was the latest in a series held by the committee, and Chairman Dave Camp, R-Mich., said he is looking for “policy options that can encourage job creation at home” rather than continuing with a tax code that is “distorting economic behavior” through high rates, compliance and administrative burdens, and a “dizzying array” of credits, deductions, exemptions and temporary tax provisions.

“We do not have a vibrant economy when we increase taxes on job creators,” Camp said. “We have a vibrant economy when we get spending down, keep taxes low and get Washington out of the way of our entrepreneurs.”

Committee Ranking Member Sander Levin, D-Mich., agreed that Congress should reform the tax code “in a way that encourages economic growth, investment and job creation” but said Congress will have to “examine the benefits that companies would be willing to give up” in order to lower rates.

As a domestic industry with few of the tax breaks enjoyed by other industries, retail pays the highest effective federal tax rate of any sector of the economy and is likely to see a lower effective tax rate under tax reform. With the highly competitive nature of the retail industry, NRF believes most of that tax reduction would be passed on to consumers through lower prices. That would enable retailers to increase sales volume, which would create the need for more employees in stores and distribution centers. In addition, retailers would purchase more inventory, increasing investment and jobs throughout the supply chain.

Misplon told the committee that return on investment is the key factor for most retailers in deciding whether to go forward with projects such as improvements to stores, building new distribution centers or improvements to internal systems. A lower corporate tax rate would make it easier to meet the ROI sought by companies, leading to higher employment both within and outside the retail industry. Lower tax rates would also allow retailers to make decisions based primarily on business strategies rather than tax implications, he said.

Even manufacturers testifying before the committee – including aerospace giant Boeing and multinational Emerson Electric Co. – said they would be willing to give up lucrative provisions such as the research and development tax credit in return for lower rates.

Levin asked whether retailers would be willing to accept a Value Added Tax in return for lower corporate tax rates, but Misplon strongly urged the committee to reject a VAT or other forms of consumption tax.

“One of the most harmful things that could be done to our economy at this time would be to place a direct federal tax on consumption,” he said. Increased retail prices that would come with a consumption tax would have a dampening effect on consumer spending that would “extremely damaging” to the economy.

Misplon cited a 2010 study conducted for NRF by Ernst & Young and the economic research firm Tax Policy Advisers that found creation of an add-on VAT to reduce the federal deficit would result in the loss of 850,000 jobs in the first year, reduce gross domestic product for three years, and bring a permanent drop in retail spending totaling $2.5 trillion over the first 10 years.

© 2011 National Retail Federation