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NRF urges US Congress to reject consumption tax
25
Mar '16
The National Retail Federation (NRF) urged the US Congress to reject any form of consumption tax and instead focus on 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 US economy,” David French, NRF senior vice president for government relations 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 observed in a NRF press release.”

French added by saying that adding a consumption tax on top of the current income tax would have even more negative consequences.

French's remarks came in a letter to the House Ways and Means Committee, which is scheduled to hold a subcommittee hearing on consumption tax proposals as part of a series of sessions on tax reform.

According to NRF, rather than taking testimony from affected parties, the Tax Policy Subcommittee is hearing from lawmakers who have proposed legislation on the issue.

NRF and a number of leading economists have argued that that the measures would bring higher prices that would decimate consumer spending, which makes up two-thirds of the nation's economy.

“Regardless of label, the proposals under consideration in this hearing are all consumption taxes and is the wrong time to consider a tax system that would increase the tax burden on consumption,” French noted.

According to French, consumption taxes are borne disproportionately by low and moderate-income families, who spend a higher proportion of their income than wealthier families.

“NRF believes a better approach to tax reform would be through income tax changes that would lower rates and broaden the base,” French noted.

“Studies have shown that this type of tax reform would have a favourable impact on the economy, wages and retail spending,” NRF also observed.

A 2010 Ernst and Young study commissioned by NRF found that adding a 10 per cent VAT to the income tax would result in the loss of 850,000 jobs in the first year.

“It would also reduce gross domestic product for three years and bring a permanent drop in retail spending totaling $2.5 trillion over the first 10 years,” NRF added by quoting the report.

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 using the revenue saved to lower rates would cause consumer spending and GDP to grow. (AR)

Fibre2Fashion News Desk – India

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