Retailers Urge Bush to Reject $200 Billion Import Tax Proposal

WASHINGTON, Oct. 20 /PRNewswire/ -- The National Retail Federation today asked President Bush to reject a tax reform panel's recommendation that would end the corporate tax deduction for imported goods, saying the move could cost consumers more than $200 billion.

"This proposal would result in one of the largest tax increases on American consumers in recent memory, and would be devastating for our nation's economy," National Retail Federation President Tracy Mullin said. "A large percentage of consumer goods sold in this country are imported from abroad, and subjecting those goods to the corporate income tax would drive up consumer prices dramatically. A tax increase of this size could send consumer spending into a tailspin, taking all of the jobs associated with those goods along with it."

The President's Advisory Panel on Federal Tax Reform on Tuesday endorsed a "progressive consumption tax" as one of two sweeping tax reform proposals to be included in a report scheduled to be submitted to Treasury Secretary John Snow on November 1.

Under the progressive consumption tax, the corporate income tax deduction for all imports, including consumer goods, raw materials and other items, would be eliminated.

Mullin told Bush in a letter sent to the White House today that $648 billion in general merchandise consumer goods were imported into the United States during 2004, according to U.S. Census Bureau statistics. At the 32 percent corporate rate proposed under the progressive consumption tax, that figure would result in $207 billion in new taxes that importers would be forced to pass on to consumers, Mullin said. Relatively few consumer goods are manufactured at competitive prices or in commercial quantities in the United States, leaving virtually no possibility in the short-term of a shift to domestic products, she said.

Economists on the Advisory Panel said that floating exchange rates would compensate for the loss of the deduction. But Mullin cautioned that such an adjustment could take a long period of time to achieve, and that many countries in Asia, Latin America and the Middle East -- all regions that are major sources of imports -- do not have floating currencies.

Mullin also argued that elimination of the deduction would be a violation of World Trade Organization rules on national treatment and could expose billions of dollars worth of U.S. exports to WTO-sanctioned trade retaliation.

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/.

Tracy Mullin, President & CEO of the National Retail Federation, sent the following letter, dated October 20, to U.S. President George W. Bush:

On behalf of the National Retail Federation, we are writing in strong opposition to the import tax proposal that has been included in a package of options that the President's Advisory Panel on Tax Reform is expected to include in their recommendations to the Treasury Department.


At its October 18 meeting, the Advisory Panel announced that it would include a progressive consumption tax in its recommendations. Under this proposal, U.S. businesses would not be able to deduct the cost of imports from their taxes as a cost of doing business. Clearly, this will result in an enormous tax increase for import dependent businesses, like retailers, which operate on very narrow profit margins and would be significantly impacted by the proposed 32 percent tax on imports.

Economists on the Advisory Panel commented that in markets where exchange rates float, a corresponding adjustment will compensate for the amount of the tax. We caution that such an adjustment could take a very long time. Also, many countries in Asia, Latin America, and the Middle East, some of which are major sources for imports, do not have floating exchange rates. In these cases any adjustment in exchange rates for the import tax would take substantially longer. According to the U.S. Census Bureau, $648 billion in general merchandise consumer goods was imported into the United States during 2004. At the 32 percent tax rate proposed under the progressive consumption tax, there would be an immediate $207 billion in new taxes that importers would be forced to pass on to consumers. Since a substantial percentage of consumer goods is imported, there is virtually no possibility in the short term of a shift to domestic production.

Finally, according to trade experts, this proposal to eliminate the business tax deduction for U.S. companies on their imports would be a clear violation of U.S. obligations under World Trade Organization rules governing national treatment, and could expose billions of dollars in U.S. exports to WTO-sanctioned trade retaliation.

In conclusion, we urge the Administration to reject the Tax Reform Panel's proposal to deny the business tax deduction for the cost of imported goods.