Newsletter

January 13, 2010 - Concern Over VAT Raised at NRF Convention

The threat of a national value-added tax was among the concerns raised as CEOs, economists and other experts discussed the economy at NRF’s 99th Annual Convention in New York this week.
 
 “A VAT would be very bad for retailing,” Allen Questrom, former CEO of both J.C. Penney and Federated Department Stores and a current member of the Wal-Mart Board of Directors. “It might be the right thing for the economy over the long run, but the U.S. has the largest consumption in the world.”
 
 “You can’t have a VAT without raising prices,” Questrom said. “My problem with the VAT is that it’s like a sales tax – it’s so easy to raise.”
 
 Questrom sat down Monday morning with Moody’s Chief Economist Marc Zandi and Family Dollar Stores Chairman and CEO Howard Levine for a panel discussion on how to “recast retail” to survive under the “new rules” of the current economy.
 
 Zandi disagreed, saying a VAT is likely to be adopted and could be good for retail.
 
 “If we have a VAT, if it’s designed properly we can cut income tax rates,” Zandi said. “It will be a drag on consumer spending but I think that’s the most efficient way to raise taxes. If we don’t do that and start running larger deficits, the hit to retailing will be worse – it would mean a weaker economy, less job growth, higher interest rates. Pick your poison.”
 
 Zandi called a VAT “the best of a lot of bad choices.”
 
 Questrom, Zandi and Levine agreed that job creation, particularly in the retail sector, is the main key to an economic turnaround.
 
 NRF has long opposed any form of consumption tax because of the impact higher prices would have on consumer spending, and told President Obama’s tax reform panel in November that a VAT would further damage the nation’s already-weakened economy. Economic models show that if a VAT were enacted in addition to the income tax to address deficit reduction it would cause GDP to decline for many years.
 
 Consumption taxes have been back in the news recently, and Senate Budget Committee Chairman Kent Conrad, D-N.D., wants a VAT considered by a bipartisan commission he and Ranking Member Judd Gregg, R-N.H., hope to create in order to address the deficit. Both Conrad and House Speaker Nancy Pelosi, D-Calif., say a combination of a VAT plus the current income tax system is needed to address the increasing deficit, and top tax advisors to former Presidents George W. Bush and George H.W. Bush have agreed.
 
 The Questrom-Zandi-Levine panel discussion was one of several sessions during the Sunday-through-Wednesday convention that addressed the economy. Former New York Times reporter Stephen Dubner, author of the book Freakonomics, analyzed how consumers have changed their spending habits during the national recession and what retailers are doing to capitalize on those changes, and Sir Terry Leahy, chief executive of Britain’s Tesco, discussed how the world’s third-largest retailer has positioned itself for strength during the downturn.
 
 For more information, contact NRF Vice President and Tax Counsel Rachelle Bernstein at (202) 626-8168.