The National Retail Federation is urging Congress to reject any form of consumption tax as it considers a variety of tax reform proposals in a hearing Tuesday.
The NRF instead wants Congress to 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 U.S. economy,” NRF senior vice president for government relations David French wrote in a
Adding a consumption tax on top of the current income tax would have “even more negative consequences,” French said.
The subcommittee hearing is part of a series of sessions that the Ways and Means Committee plans to hold on tax reform. Rather than taking testimony from affected parties, the Tax Policy Subcommittee is hearing from lawmakers who have proposed legislation on the issue.
Rep. Devin Nunes, R-Calif., a member of the Ways and Means Committee, testified in support of his bill,
Rep. Michael Burgess, R-Texas, discussed the merits of his bill,
Rep. Robert Woodall, R-Ga., spoke in support of his bill,
“Today the subcommittee will hold the first in a series of hearings to focus on fundamental tax reform,” said chairman Charles Boustany, R-La. “We are honored to have three of our esteemed colleagues join us today so we can learn about bills they have developed to take the tax system in a new direction, by moving away from income as the tax base and instead looking to cash-flow or consumption as a tax base that is more conducive to economic growth. These are important ideas, in which our colleagues have invested an enormous amount of time and energy. And it shows the seriousness of their commitment to the effort to develop a pro-growth tax system for the 21st century.”
Rep. Richard Neal, D-Mass., the ranking member of the subcommittee, voiced his frustration that Congress has not made more progress on tax reform. “Today’s hearing is yet another in a long line of hearings that we have had on this matter,” he said in his opening statement. “I must express my frustration at a hearing that seemingly takes us backwards. The time for talk has passed. Now is the time for action.”
While no consumption tax legislation has come close to passage, the NRF noted that a variety of consumption tax concepts have come up in Congress over the past decade and a half, including a European-style Value Added Tax to replace the current income tax system, a VAT in addition to the current income tax, a National Retail Sales Tax and a Flat Tax. NRF and other opponents argue the measures would raise prices and 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,” French wrote. “It is the wrong time to consider a tax system that would increase the tax burden on consumption.”
French said 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 said. “Studies have shown that this type of tax reform would have favorable affects on the economy, wages and retail spending.”
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In contrast, a 2014 review by the congressional Joint Tax Committee found that broadening the base by limiting tax deductions and exemptions and using the revenue saved to lower rates would cause employment, consumer spending and GDP to grow.