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The United States has the highest corporate tax rate in the world. While other countries have lowered rates in recent years, the United States has stayed firm at 35 percent, prompting some U.S. companies to move jobs overseas and deterring foreign companies from investing. The average corporate rate for most major industrialized nations is 25 percent, and some countries have dramatically lower rates – Ireland, for example, cut its levy to 12.5 percent to attract foreign investment. In addition, the U.S. tax system is riddled with special deductions and credits that can lower some companies’ tax bills but provide incentives to make investments that do not always make good business sense. Executives are often forced to make decisions based on tax implications rather than what’s best for their businesses, stockholders and workers.
A 10 percent VAT proposal by Senator Ben Cardin would drive up prices for consumers. Listen to NRF’s radio ad opposing the European-style tax and learn more about how the measure could threaten retail sales.
Why it Matters to Retailers
Retail benefits from few of the tax breaks that lower tax bills for other industries, and pays the highest effective corporate tax rate of any sector of the U.S. economy – at or close to the maximum 35 percent. The retail industry would see significantly lower tax bills under proposals to “broaden the base” by eliminating most deductions and credits and then use the tax revenue that would be recovered to lower rates for all businesses. Tax reform would benefit retailers by:
- Increasing consumer spending because more revenue would be returned to middle-income taxpayers and cycled through the economy.
- Reducing retailers’ tax burden, freeing up capital for investments in stores, inventory and jobs.
- Eliminating complicated tax incentives and allowing companies to make decisions based on business strategies rather than tax implications.
A new study conducted for NRF by Ernst & Young shows that the United States’ failure to enact corporate tax reform while other nations have lowered their corporate tax rates has held back wages, gross domestic product and consumer spending. Wages are 0.2 percent lower than they would be with tax reform, GDP 1.5 percent lower and consumer spending 2 percent lower, costing the average family $3,000 a year. If reform were adopted, GDP, spending and employment would all increase, according to the study.
NRF Advocates for Corporate Tax Reform
NRF has led the retail industry’s push for tax reform and is an original steering committee member of the RATE Coalition, which represents a broad range of industries dedicated to the issue. In the course of dozens of meetings with lawmakers, policy experts and opinion leaders, and through reports and testimony, NRF has emphasized that reform of the existing tax system—not bumper-sticker proposals to abolish the IRS or scrap the tax code—is the proper path to economic prosperity. Tax reform principles adopted by the NRF Board of Directors set out priorities that would boost the economy and encourage job growth.
NRF supports legislation similar to that proposed by former House Ways and Means Committee Chairman Dave Camp, R-Mich., in 2014 that would have lowered the corporate tax rate to 25 percent from 35 percent in return for eliminating a wide range of tax deductions and credits. The plan would also have consolidated the seven current personal income tax brackets, which range as high as 39.6 percent, into two brackets of 10 percent and 25 percent with a 10 percent surtax on some earned income above $450,000 a year. NRF called the proposal “the foundation for job creation, increased take-home pay and business growth.” The congressional Joint Committee on Taxation estimated that the measure would have boosted GDP by $3.4 trillion over 10 years, created 1.8 million jobs, boosted the median take-home income of a family of four by $1,300 annually and resulted in a 2.1 percent increase in consumer spending.
While Camp has retired from Congress, similar legislation has been proposed by other lawmakers and his proposal was cited by the above-mentioned Ernst & Young study as a model for reform.
NRF opposes a plan to create a 10 percent federal value added tax proposed by Senator Ben Cardin, D-Md. Studies commissioned by NRF have shown that a VAT, national sales tax or other consumption tax could sharply reduce consumer spending and the two-thirds of the economy that rely on it.
Time for Retailers to Get Involved
Having the world’s highest corporate tax rate isn’t something to cheer about. And it isn’t helping domestic businesses like retailers who are working hard to restore the nation’s economy. It’s time for retailers to contact Congress and tell lawmakers the current tax system is hindering the industry’s ability to grow and create jobs. It’s time to tell Congress to act.
Urge Congress to Support Corporate Tax Reform
After years of talk, lawmakers in Washington appear to finally be getting serious about corporate tax reform. Both Congress and the White House have offered proposals to broaden the base and lower rates, and both sides of the political aisle agree that the time for action has come.
Send a letter to your representatives today letting them know that the current tax system is hindering the retail industry’s ability to grow and create jobs.
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A report from Ernst & Young examines the potential impact on consumers and the overall economy of inaction on tax reform in the United States over the past several decades and the potential economic benefits that could arise from reform of the U.S. tax system.