Retailers Question Greenspan on Consumption Tax

WASHINGTON, March 3 /PRNewswire/ -- The National Retail Federation today questioned comments made by Federal Reserve Chairman Alan Greenspan supporting a national consumption tax.

"We are extremely distressed to hear Chairman Greenspan speak favorably of any form of consumption tax," NRF Senior Vice President for Government Relations Steve Pfister said. "A National Retail Sales Tax or VAT would devastate the nation's economy for years before economic gains -- if any -- would be seen."

"Under the proposed national sales tax rate of 30 percent at the cash register, consumers would simply stop spending on anything but the barest necessities for a prolonged period of time," Pfister said. "This would have a ripple effect throughout the economy with an impact far beyond the retail industry. Even at lower rates, the psychological effect on consumer spending would be profound."

"Chairman Greenspan is correct in recognizing the political obstacles to dismantling the current income tax system," Pfister said. "Our research shows that during the transition period from the current system to a consumption tax, the economy, employment and consumer spending would all decline significantly. The price is too great to pay for any modest growth that might come in the long-term. Many retailers and the companies behind the products they sell -- especially the small businesses of America already struggling to succeed -- would be out of business before they could benefit from that growth."

A study commissioned by NRF in 2000 found that a national sales tax would bring a three-year decline in the economy, a four-year decline in employment and an eight-year decline in consumer spending. Another study by the congressional Joint Committee on Taxation said a 57 percent rate would be necessary to replace all current federal tax revenue. A VAT would have largely the same effect.

Greenspan testified today before the President's Advisory Panel on Federal Tax Reform, which was appointed by President Bush in January to explore various tax reform options including a National Retail Sales Tax and a value added tax (VAT).

The key NRST proposal before Congress is H.R. 25, the Fair Tax Act, sponsored by Representative John Linder, R-Ga. The Linder legislation would replace the current federal tax system with a national sales tax that would add 30 percent or more to the cost not only of retail merchandise but also to a wide range of goods and services currently not subject to sales tax such as new home sales, health care and prescription drugs.

Pfister said Congress and the Bush Administration should consider all options as they debate tax reform, including revisions to the existing income tax system. Economic disruptions that would come with fundamental change should also be carefully considered, he said.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet and independent stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees -- about one in five American workers -- and 2004 sales of $4.1 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. http://www.nrf.com/.