NRF opines Tax Panel recommendations to push up consumer prices
19 Oct '05
3 min read
The Advisory Panel agreed to include three proposals in the report scheduled to be delivered to Treasury Secretary John Snow on November 1. One would be a revamping of the existing income tax system. A second would be a “progressive consumption tax” that would look like an income tax but would reduce taxes on savings and investments. The third, which would be included but not recommended, would be an add-on Value Added Tax.
Under the progressive consumption tax, the corporate income tax deduction for all imports, including consumer goods, raw materials and other items, would be eliminated. Massachusetts Institute of Technology economist John Poterba, a member of the Advisory Panel, contended that importers would not be hurt in the long run because exchange rates would adjust to compensate. He conceded, however, that there would be transition problems and recommended that importers be given a credit based on past import levels to ease the transition.
A total of $648 billion in general merchandise consumer goods were imported into the United States during 2004, according to U.S. Census Bureau statistics. At the 32 percent corporate rate proposed under the progressive consumption tax, that figure would result in $207 billion in new taxes that importers would be forced to pass on to consumers.
Relatively few consumer goods are manufactured at competitive prices or in commercial quantities in the United States, leaving little possibility of a short-termshift to domestic products.
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