In response to the request by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) for public input, the Retail Industry Leaders Association (RILA) today submitted letters to three of the Committee's bipartisan tax working groups regarding comprehensive, bipartisan reform of the tax code.
As noted by Jennifer Safavian, RILA's executive vice president of government affairs, in the letter, "RILA supports comprehensive, base-broadening, rate-reducing, revenue-neutral tax reform which narrows the discrepancies in effective tax rates (the rate that businesses actually pay) between industry sectors." Safavian further stated, "…RILA urges Congress to broaden the base and introduce comprehensive reform that promotes a balanced tax system that fosters overall economic growth and job creation."
RILA has long advocated for enacting comprehensive reform that fosters economic growth and restores America's global competitiveness. Using information collected from a RILA-commissioned PricewaterhouseCoopers (PwC) study on the tax rates that the retail industry pays, RILA outlined standards for reform that, if met, will free retailers, as well as the broader business community, to invest, grow, and create new jobs.
"Retailers compete every day for consumers' loyalty and spending. The nation's tax rules, domestic and international, should foster their success – not erect competitive barriers – especially as retailers continue to expand in the global marketplace," said Safavian.
Of the five bipartisan tax working groups, RILA submitted letters to the Business Income Tax, Individual Income Tax, and International Tax groups. Links to each letter, along with the full text, can be found below.
Business Income Tax
Individual Income Tax
RILA is the trade association of the world's largest, most innovative and recognizable retail companies and brands. Our membership includes more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad. RILA's members make a significant impact on the daily lives of all Americans – from its customers to its employees and their families to the communities they serve. A list of our retail members is attached.
RILA has been a steadfast supporter of enacting comprehensive tax reform – corporate, individual and international. RILA supports comprehensive, base-broadening, rate-reducing, revenue-neutral tax reform which narrows the discrepancies in effective tax rates (the rate that businesses actually pay) between industry sectors. We also believe the U.S. should move away from our current "worldwide" tax regime toward more of a "territorial" type system. While all tax benefits relevant to retailers should be put on the table in the tax reform debate, we stress that tax accounting methods (e.g., the LIFO and LCM accounting methods) should be separately examined since accounting methods are fundamental to any tax system – especially where inventories are required – and are not a tax expenditure or special loophole.
Few industries have a greater impact on the U.S. economy than retail. Retailers pay billions of dollars in federal, state, and local taxes each year, and collect and remit billions more in sales taxes to state and local governments. The more than $553 billion in labor income and more than $3.8 trillion in sales generated by retailers, large and small, make the industry one of America's most powerful economic engines.
The retail industry's most significant contribution to the economy is its role as America's second-largest private employer. The retail industry directly accounts for nearly 18 million American jobs. Further, more than 10 million additional jobs in manufacturing, finance, insurance, real estate, transportation and warehousing, and services industries are supported by retailers. The depth and breadth of the retail supply chain is far reaching throughout the country and the world.
For millions of Americans, including Members of Congress and their staff, their first job was in retail. For many executives in RILA's member companies, their entire careers are spent in the retail industry – beginning at a cash resister, stocking shelves, or working in a distribution center, then becoming store managers before moving up through the company ranks. Retailers offer flexible schedules which enable individuals to spend more time with their families or complete a degree, and provide employees with extensive training at all job levels and skill sets that lay a core foundation for fundamental career development. Retailers also create millions of high-tech and high-paying jobs as consumer demand and industry innovation continually advance and change.
Retailers often serve a central role as stewards of communities beyond that as a place to purchase goods and services. Brick and mortar retailers, large and small, provide a significant tax base for core local and state services such as police, fire and rescue, and schools. Beyond investing resources in store operations and job creation, brick and mortar retailers: give billions of dollars annually to tens of thousands of local and national charities; hire American veterans; sponsor local sports and recreation teams; provide tangible goods donations to schools and homeless shelters; support community workforce development and training programs; and often provide shelter during storms and are the first on the ground after disasters strike to provide families with relief and help communities rebuild. Additionally, even the largest retailers rely on small business vendors in communities, such as plumbers and electricians, to keep stores open and operating.
Unfortunately, the retail industry's treatment under the current tax code belies its prominent place in the economy and stifles job creation, investment, and consumer savings. A few years ago, RILA commissioned PricewaterhouseCoopers (PwC) to conduct a study on the tax rates that the retail industry pays. The study, entitled U.S. Retail Trade Industry: Employment, Taxes, and Corporate Tax Reform, concluded that at 36.4 percent, the retail industry's effective tax rate is the fourth highest domestic effective tax rate – nearly 10 percentage points higher than the average – of all the 18 major U.S. industrial sectors. A copy of the full study and the executive summary are attached for your review.
The government should not use the tax code to pick winners and losers. Today, it does just that. Thousands of changes to the tax code over nearly three decades have created myriad rules, credits, and deductions that give some industries and individuals advantages over others.
Under current law, domestic effective tax rates vary widely. This combination of high effective tax rates, burdensome requirements, and constantly expiring provisions depresses investment and growth, makes compliance unbearably difficult, and costly and long-term planning nearly impossible. For instance, when Congress fails to extend the work opportunity tax credit (WOTC) in a timely manner, individual states, which administer the credit, delay or halt the processing of credits. These delays in turn hamper the ability for retailers to implement hiring business expansion plans.
The increased complexity and inefficiency of the federal tax code trickles down through to the state and local level, creating heavy collection and compliance burdens on top of federal obligations. For example, state and localities continually place taxes and fees on retailers for the sale of items such as air conditioners, refrigerators, soda, motor oil, and even playing cards. State and localities have also implemented regulatory and recycling disposal fees on retailers for good such as computers and televisions, plastic bags, mattresses, and consumable and personal products.
Additionally, the disproportionate tax rate placed on the retail industry largely undermines U.S. competitiveness. A growing number of U.S. retailers are expanding into the global marketplace through the establishment of both retail operations in other countries as well as subsidiaries that strengthen the supply chain of goods and services they provide to their customers in this country. The United States' current system of taxing worldwide income and proposals to increase the tax burden on U.S. multinationals not only constrain a retailer's ability to grow internationally but also cost the U.S. the well-paying jobs that a company typically must add to oversee such global operations.
Given the enormous employment footprint of the retail industry, comprehensive tax reform could stimulate job growth in the retail sector and the industries supported by retail. RILA supports comprehensive tax reform that:
1. Eliminates special preferences that give some an advantage over others;
2. Substantially lowers the rate for all business taxpayers;
3. Addresses the tax rules applicable to all business types, as well as individual consumers;
4. Simplifies and stabilizes the tax code; and
5. Restores America's global competitiveness by instituting a territorial tax system.
Comprehensive tax reform that meets these standards will free retailers, as well as the broader business community, to invest, grow, and most importantly, create new jobs. The status quo is unacceptable.
RILA supports including all tax benefits and preferences in the debate because a substantially lower rate will result in more capital available to expand retail businesses and create jobs. A 2007 Department of Treasury report entitled Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century, suggested the economic benefit of lowering the corporate income tax rate to 28 percent would be "modest" and that lowering the rate to 20 percent "could potentially produce larger economic benefits."
The RILA-commissioned PwC study found that revenue neutral corporate tax reform that reduces the retail industry's financial statement federal income tax rate to the current average for all industries could have a substantial and immediate effect on retail's contribution to the economy. Specifically, such reform could create more than 327,000 jobs in year one, save consumers $10.2 billion and increase salaries and wages by more than $10 billion.
A simple and stable tax code with substantially lower rates has the potential to produce savings that could be reinvested to increase employment, increase wages and salaries, and lower retail prices. If we are serious about giving U.S. businesses the ability to compete effectively in the global marketplace, a substantial reduction in the corporate income tax rate is essential.
Rather than enacting legislation that perpetuates the advantages the current tax code provides for certain sectors of the economy, RILA urges Congress to broaden the base and introduce comprehensive reform that promotes a balanced tax system that fosters overall economic growth and job creation.
In order for reform to have its greatest effect, it must address the tax code for all taxpayers and all types of businesses. Businesses that are not taxed separately as corporations are subject to taxation under the individual tax rules. These businesses, including many retail establishments, would be left at a further disadvantage if the individual tax rules are not addressed. Additionally, individual taxpayers face the same dizzying patchwork of rules, credits, and deductions. If we agree that the corporate tax system desperately needs to be reformed, then we must also agree that the individual tax rules demand the same overhaul. Like businesses, consumers deserve a tax code that is equitable, coherent, and administrable.
Further, as an additional step to secure American competitiveness abroad, the retail industry favors a territorial tax system, similar to those widely adopted around the world. This would focus U.S. taxation on the domestic earnings of U.S. businesses and prevent the double taxation of their foreign operations abroad, which currently puts them at a competitive disadvantage to foreign competitors.
Finally, RILA and the National Federation of Independent Business (NFIB) founded and co-chair the Coalition for Fair Effective Tax Rates (CFETR). The goal of the Coalition is to ensure that policymakers view tax reform through the lens of effective tax rates so that the current inequities in the tax code are corrected. CFETR includes nearly 200 national and state business organizations representing over 1.5 million businesses. In addition to its size, CFETR is unique in that its members represent both large corporations that pay corporate taxes and small mom and pop businesses that pay taxes through the individual side of the tax code.
Retailers compete every day for consumers' loyalty and spending. The nation's tax rules, domestic and international, should foster their success – not erect competitive barriers – especially as retailers continue to expand in the global marketplace.
Again, thank you for your leadership in the process of reforming our nation's tax code. RILA looks forward to continuing to work with you, the Committee and Congress to enact comprehensive reform that achieves our shared goals of economic growth and job creation.
Jennifer M. Safavian
Executive Vice President, Government Affairs
RILA is the trade association of the world's largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.