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Idea of a consumption tax is blasted by NRF.

WASHINGTON -- The National Retail Federation (NRF) is urging Congress to reject calls for a consumption tax as part of a broader tax reform.

In a letter to the House Committee on Ways and Means, NRF argued that a preferable approach would focus on income tax reform that broadened the tax base while lowering tax rates.

"Replacement of our current income tax system with a consumption tax system would cause great disruption to the U.S. economy," commented David French, NRF's senior vice president for government relations.

The letter was delivered to the committee last month as its tax policy subcommittee was holding a hearing on tax reform proposals from three Republican lawmakers.

Rep. Devin Nunes (R., Calif.) testified in support of his bill, the American Business Competitiveness Act of 2015, which would tax a business based on its cash flow instead of its income. Rep. Robert Woodall (R., Ga.) spoke in support of his bill, the FairTax Act of 2015, which would repeal all federal income, payroll and withholding, and estate and gift taxes. The taxes would be replaced with a national sales tax on gross payments of taxable property or services. Rep. Michael Burgess (R., Texas) testified on behalf of the Flat Tax Act, his proposal to give businesses and individuals the choice to opt in to a 17% flat tax and to be taxed on a cash flow basis for business activities.

Sen. Ted Cruz (R., Texas), who is running to be the Republican Party standard bearer in this year's presidential election, is campaigning in part on a proposed reform he is calling the "Simple Flat Tax Plan." Some tax policy experts have said that Cruz is calling for a type of value-added tax (VAT) that is currently not seen in the United States and would replace personal income taxes with a broad tax on all kinds of income, levied on businesses and organizations.

"Regardless of label, the proposals under consideration in this hearing are all consumption taxes," NRF's French wrote. "It is the wrong time to consider a tax system that would increase the tax burden on consumption."

A 2010 study by accounting firm Ernst and Young that was commissioned by NRF found that adding a 10% VAT to the income tax would result in the loss of 850,000 jobs in the first year, reduce gross domestic product for three years and bring a permanent drop in retail spending totaling $2.5 trillion over the first 10 years. A PwC study conducted for NRF in 2000 concluded that a flat tax would bring a five-year decline in GDP and a six-year decline in consumer spending, while a national retail sales tax would bring a four-year decline in GDP and an eight-year decline in spending.

"By 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," NRF commented.

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Title Annotation:OPINION
Date:Apr 11, 2016
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