The National Retail Federation asked president-elect Barack Obama to incorporate a series of national sales tax holidays into upcoming economic stimulus legislation as an important step toward rebuilding consumer confidence, saying short-term gains from consumer spending and long-term growth from job creation are both needed to achieve economic recovery.
“We urge you to act quickly on legislation to help stimulate consumer spending as one of the first priorities of your new administration,” NRF said in a letter to Obama. “To be effective, any fiscal stimulus package must be enacted with great speed. It must be substantial. And it must be sustained. To accomplish this, the plan must include a longer-term investment designed to produce sustained economic growth through job creation as well as short-term economic stimulus aimed at increasing consumer spending.”
“The situation is critical,” NRF said. “In October, consumer confidence was at its lowest level in the 41 years that records have been kept. This is due, as you know, to a disastrous combination of decreasing home values, increasing unemployment, reduced availability of credit, failures of major companies, and weakness in the stock market. Moreover, it does not appear that these concerns will abate any time soon. With consumer spending accounting for 70 percent of GDP, it is difficult to foresee an improvement in overall economic growth until the consumers regain their footing.”
“Retailers’ considerable experience with sales tax holidays has shown that they provide a substantial inducement for people to shop,” the letter said. “To this end, we suggest a series of three national sales tax holidays that would cover a very broad range of goods.”
The letter was signed by NRF chairman, Myron E. “Mike” Ullman III, chairman and CEO, JCPenney Company; NRF first vice chairman, Philip L. Francis, chairman and CEO, PetSmart Inc.; NRF second vice chairman, Stephen I. Sadove, chairman and CEO, Saks Inc.; and NRF president and CEO Tracy Mullin.
NRF proposed that tax holidays be held during March, July and October 2009, each lasting 10 days including two weekends. Tax-free treatment would apply to all tangible goods subject to a state sales tax ranging from apparel and home furnishings to restaurant dining and automobiles but would exclude tobacco and alcohol. The federal government would reimburse the 45 states that have sales taxes for the lost revenue, and would provide the five states without a sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) with revenue approximating the sales tax reimbursement that would be received by states with similar population.
State sales tax rates range from 2.9 percent to 7.25 percent and add $236 billion a year to the amount U.S. consumers pay for goods and services, according to the U.S. Census Bureau. By temporarily lifting the sales tax for the three 10-day periods, NRF estimates that consumers could save nearly $20 billion. Based on the 112.4 million households in the United States, the figure would amount to almost $175 for the average family.
In addition to saving consumers money, the sales tax holidays would help support the 25 million jobs in the U.S. retail industry, or one out of every five U.S. workers, and millions of jobs in industries that supply retailers with merchandise and services.
A number of states hold sales tax holidays each year – most in the summer to help families with the cost of school supplies – and retailers have found the events prove highly popular with consumers. An NRF survey conducted when a national sales tax holiday was considered in 2001 found 82 percent of consumers favored a tax holiday, 83 percent would take advantage by making purchases, and 69 percent would make purchases they otherwise would not have made.
NRF also called for infrastructure investment in roads, rails, ports, public schools, and renewable energy projects, saying it would have a double benefit of creating jobs and repairing systems that are critical to commerce.
“We believe that significant investment in infrastructure spending will provide jobs and increase GDP at a higher rate than most other government investments, and will produce longer-term, sustained growth,” Mullin said.