NRF urges Congress to reject consumption tax
The National Retail Federation (NRF) urged Congress to reject consumption tax in favor of changes to the income tax system that would broaden the tax base in return for lower rates.
"Replacement of our current income tax system with a consumption tax system would cause great disruption to the U.S. economy,” NRF senior VP government relations David French said. “Congress should not consider making this type of change at a time when the economy is stagnant and consumer confidence is so low.”
French delivered his remarks in a letter to the House Ways and Means Committee, which is scheduled to hold a subcommittee hearing on Tuesday on consumption tax proposals.
According to the NRF, a variety of consumption tax concepts have come up in Congress over the past decade and a half, including a European-style Value Added Tax to replace the current income tax system, a VAT in addition to the current income tax, a National Retail Sales Tax and a Flat Tax.
NRF's argument is that these proposals would bring higher prices that would decimate consumer spending, which makes up two-thirds of the nation’s economy, and also disproportionately affect low-income families.
“Regardless of label, the proposals under consideration in this hearing are all consumption taxes,” French wrote. “It is the wrong time to consider a tax system that would increase the tax burden on consumption.”
“NRF believes a better approach to tax reform would be through income tax changes that would lower rates and broaden the base,” French said. “Studies have shown that this type of tax reform would have favorable affects on the economy, wages and retail spending.”
A 2010 Ernst and Young study commissioned by NRF found that adding a 10% VAT to the income tax 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. A PricewaterhouseCoopers study conducted for NRF in 2000 said a Flat Tax would bring a five-year decline in GDP and a six-year decline in consumer spending while a National Retail Sales Tax would bring a four-year decline in GDP and an eight-year decline in spending.
By contrast, a 2014 review by the congressional Joint Tax Committee found that broadening the base by limiting tax deductions and exemptions and using the revenue saved to lower rates would cause employment, consumer spending and GDP to grow.