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After months of negotiations, President Trump and congressional Republicans have agreed on a proposal that could result in the first comprehensive reform of federal tax laws in more than three decades.
The “Unified Framework for Fixing Our Nation’s Broken Tax Code” released in September would eliminate most corporate tax breaks and use the money saved to reduce the corporate tax rate to 20 percent from 35 percent, a goal long sought by NRF and the retail industry. Among other provisions, businesses would be allowed to immediately write off investments in depreciable assets for at least five years, but corporations’ ability to deduct interest would be limited. Small business “pass throughs” would be taxed at 25 percent, the estate tax would be repealed, and the seven current personal income tax brackets ranging from 10 percent to 39.6 percent would be consolidated into three rates of 12, 25 and 35 percent.
NRF welcomed the proposal, saying it could provide a major boost for the nation’s economy and could “unlock job creation and economic growth.”
The proposal came two months after NRF led retailers in helping defeat a proposal to create a new $1 trillion border tax that would have driven up the price of imported goods and shifted a large share of the nation’s tax burden to consumers.
With distractions like the border tax out of the way, congressional leaders hope to put a tax reform bill on Trump’s desk by the end of the year. Many details must be resolved before that can happen, and Democrats have voiced objections, but the issue is nonetheless Congress’ top priority for the immediate future.
Why it Matters to Retailers
Retail benefits from few of the tax breaks that lower tax bills for other industries, and pays the highest effective corporate tax rate of any sector of the U.S. economy – at or close to the maximum 35 percent. Because of that, the retail industry is a strong supporter of income tax reform that would broaden the tax base and lower the corporate tax rate. Based on economic studies performed by the congressional Joint Commission on Taxation and conducted for NRF by Ernst and Young, doing so would increase gross domestic product, wages and consumer spending. The NRF Board of Directors adopted a formal set of tax reform principles nearly five years ago that would boost the economy and encourage job growth.
NRF Advocates for Corporate Tax Reform
NRF’s latest research to support the need for tax reform includes an analysis which found that the average employee of a U.S. “C” corporation is paid $4,690 less per year because of high corporate taxes. The analysis said reducing the corporate rate to 20 percent could result in higher wages or the creation of between 500,000 and 1.5 million new jobs. NRF has also argued that lowering the corporate rate would encourage foreign retailers to invest more in their U.S. operations.
While much of the debate over business tax reform has focused on the corporate tax rate, NRF has pushed for tax relief for small businesses as well because 98 percent of retailer are small businesses and provide 40 percent of retail employment.
In a September letter to the Senate Finance Committee, NRF set out a series of principles for tax reform. NRF said reform should be neutral among types of businesses so that companies are not favored on their form of legal entity (such as C corporations vs. “pass through” businesses that pay taxes as part of owners’ personal income tax), how they hold their property (leased stores vs. owned) or distribution channel (online vs. bricks-and-mortar). NRF said an adequate transition time should be provided after passage, and that reform should not shift the burden to consumers as would have happened under the border adjustment proposal.
Several provisions of the United Framework proposal are similar to the “Better Way” tax reform plan proposed last year by House Speaker Paul Ryan, R-Wis., and House Ways and Means Committee Chairman Kevin Brady, R-Texas, both of whom now support the new plan. But the Ryan-Brady plan also included the border adjustment tax proposal, which would have imposed a 20 percent tax on all imports ranging from retail merchandise to oil to parts used in U.S.-made products.
The BAT provision was a poison pill for merchants, most of whom rely heavily on imports to provide American consumers with products they need at prices they can afford. Some retailers told NRF the BAT would have resulted in tax bills three to five times as large as their current profits. Most retailers would have had little choice but to pass the new tax costs along to customers in the form of higher prices. But the dramatic price increases that would have been required would have likely led to significant reductions in sales, ultimately putting a number of retailers out of business and their employees out of work.
NRF led the retail industry’s fight against the BAT, taking retail CEOs to Washington to meet with Congress and key members of Trump’s Cabinet including Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross and Labor Secretary Alex Acosta. Brian Cornell, chairman and CEO of NRF member company Target, testified against the BAT at a Ways and Means Committee hearing.
NRF also brought the issue to the attention of millions of consumers with its “As Seen on TV” commercial, which aired on Saturday Night Live and went viral on the internet with a fast-talking pitchman explaining the BAT and saying “It’s a job killer – guaranteed!”
- Policy Agenda
- Action Center
- Retail's Impact
- Policy Committees
- NRF RetailPAC
- Voting Records
- State Retail Associations
- Vote Retail
- State of the Union
- Corporate taxes cost American workers more than $4,000 in lower wages
- 5 principles for meaningful tax reform
- An open letter to retailers: Achieving tax reform in the 21st century
- NRF Legislator of the Year says Congress needs more members from private sector
- After BAT week in Washington, push continues with new TV ads
A report from Ernst & Young examines the potential impact on consumers and the overall economy of inaction on tax reform in the United States over the past several decades and the potential economic benefits that could arise from reform of the U.S. tax system.