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NRF Urges Congress to Reject Consumption Tax

Tax reform efforts should focus on income tax changes, not adding consumption tax, the National Retail Federation (NRF) said.

The group’s comments came Tuesday in a letter to a House Ways and Means subcommittee ahead of a scheduled hearing as part of a series of sessions aimed at overhauling the tax code.

“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. “Congress should not consider making this type of change at a time when the economy is stagnant and consumer confidence is so low.”

Adding a consumption tax on top of the current income tax would have “even more negative consequences,” French continued.

The U.S. has the highest corporate tax in the world, at 35 percent, which the NRF said has prompted some domestic companies to move jobs overseas and puts off foreign investors.

A consumption tax such as a value-added tax (VAT), which is a levy on consumption that taxes the value added to goods or services by businesses at each point in the production chain, would bring higher prices which would deter consumer spending, NRF has argued. Other proposals from lawmakers have included a National Sales Tax and a Flat Tax.

“It is the wrong time to consider a tax system that would increase the tax burden on consumption,” French said, noting that the brunt of such an addition would be borne by low- and moderate-income families. “NRF believes a better approach to tax reform would be through income tax changes that would lower rates and broaden the base.”

To help drive its point home, NRF commissioned a number of studies in recent years, which found that adding a 10 percent VAT to the income tax would permanently cut retail spending by $2.5 trillion over the first 10 years, while a Flat Tax would bring a six-year slip in spending.

By comparison, a 2014 review by the congressional Joint Tax Committee found that broadening the base by limiting tax reductions and exemptions and using the revenue saved to lower rates would spur employment and spending and cause gross domestic product to grow.