NRF: Stimulus Bill Would Help, But Doesn’t Go Far Enough

The National Retail Federation told the U.S. Congress that economic stimulus legislation being negotiated between the House and Senate would assist consumer spending but still doesn’t do enough to provide the jumpstart that would bring shoppers back into stores.

NRF welcomed the legislation’s “Making Work Pay” tax credit, a Home Ownership Tax Credit for home buyers and other initiatives aimed at low- and middle-income families, saying they would contribute to the economy because those taxpayers are most likely to spend the extra cash.

“While these and other individual tax provisions will provide stimulus, this massive measure still fails to provide the direct and targeted tax relief needed to stimulate consumer spending,” NRF Senior Vice President for Government Relations Steve Pfister said. “With consumer spending representing two-thirds of GDP and consumer confidence at the lowest level since records have been kept, it is difficult if not impossible to foresee an improvement to overall economic growth until consumers regain confidence and resume spending.”

“We continue to believe the best mechanism to accomplish this goal would be a series of national sales tax holidays,” Pfister said. “The increased sales resulting from these holidays would provide a direct infusion of liquidity into the economy estimated at $20 billion, benefiting consumers and cash-starved states, and would preserve and create significant numbers of jobs through interrelated sectors of the economy including the retail, manufacturing and transportation industries.”

Pfister’s comments came in a letter to members of a congressional conference committee working to negotiate a compromise between versions of the American Recovery and Reinvestment Act passed by the House and Senate.

Pfister said NRF supports a provision of the legislation that would allow businesses to offset current losses against previous profits from as long as five years ago rather than the current two-years. The change in “carry back” rules would give companies $15 billion to $20 billion in badly needed cash, about a quarter of which would go to retailers struggling to keep stores open and employees on the payroll.

But NRF opposes a provision that would allow laid-off workers who are 55 or older or who have worked at a company for 10 years or more to continue their health insurance coverage under COBRA until they find another job or qualify for Medicare. NRF cited a study showing that the provision would cost employers between $39 billion and $65 billion over 10 years on top of the “already crushing” cost of employee health insurance, and said the issue should be dealt with as part of health care reform rather than economic stimulus.

NRF in December proposed that a series of national sales 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 state sales tax except tobacco and alcohol, ranging from retail merchandise and restaurant meals to automobiles. 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 comparable revenue based on population.

NRF estimates that the proposed tax holidays could save consumers nearly $20 billion, or almost $175 for the average family, based on the $236 billion in sales tax collected nationwide each year. Beyond consumers saving money on already-expected purchases, retailers have reported sales increases of 35-40 percent from state-level tax holidays that have become popular in recent years.

Work on economic stimulus legislation comes as the retail industry is facing one of its most difficult years on record. NRF released its annual retail sales forecast last week, predicting that sales will drop 2.5 percent during the first half of 2009 and end the year down 0.5 percent from 2008’s already-low levels. That would be the first year-to-year drop since NRF began forecasting results in 1995. In addition, the retail industry lost 579,000 jobs in 2008 and is continuing to see job losses this year.