Business Tax Reform
- Retailers are one of the highest effective taxpaying industries in America, utilizing very few special tax deductions or credits.
- Retailers support business tax reform that will lower tax rates and broaden the tax base. This would level the playing field, making the tax code fairer and more competitive.
- A broadened tax base combined with lower rates will bring about a more economically efficient tax system. In the retail industry, it will lead to greater investment in new stores, distribution centers, remodels, technology and inventory. Tax reform will also increase employment both within and outside of the retail industry.
- Lower U.S. corporate tax rates will help encourage foreign investment in this country. Currently, the United States has the highest corporate tax rate in the OECD, which is a great disincentive to investment in the United States.
- The United States should reject proposals to adopt a Value Added Tax (VAT) as part of the tax reform debate. A recent study performed for the NRF by Ernst & Young (E&Y) and Tax Policy Advisors found that if a VAT were adopted in addition to the income tax, it would cause a loss of 850,000 jobs in the first year and 700,000 jobs over the longer term.
- A VAT would lower retail spending by $2.5 trillion over the next decade.
- A VAT is highly regressive. The E&Y study showed that most Americans would have a lower standard of living if a VAT were enacted – A middle income family of four would have to pay additional VAT taxes equal to their current income tax liability.
The current tax system distorts decisions regarding business investments and harms the competitiveness of American businesses. The President recently released his “blueprint” for corporate tax reform that would broaden the corporate tax base to eliminate various deductions and credits,so-called “tax expenditures,” and use the revenue to lower the corporate tax rate. Ways and Means Committee Chairman Camp recently released a discussion draft for corporate tax reform, calling for a 25 percent corporate tax rate and a 25 percent individual tax rate. In addition, the bipartisan commissions that have worked on deficit reduction over the past two years have all agreed that the U.S. income tax system should be reformed by lowering the tax rates and eliminating tax expenditures.
Several fundamental problems with the U.S. tax system will surface over the next year, increasing the need for tax reform. Impending problems include the expiration of the Bush tax cuts for individuals at the end of 2012, the fact that the U.S. corporate income tax is the highest in the world, and growth in entitlement spending. Retailers are the highest effective taxpaying industry in the United States. As a result, retailers generally favor tax reform that would lower the tax rate and broaden the tax base. This would result in added investment and jobs. Consumption tax proposals – including a VAT – would harm retailing, by not only increasing the cost of consumer goods, but also by permanently reducing jobs in the economy.