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NRF Proposes National Sales Tax Holiday

The National Retail Federation urged President-elect Barack Obama to support three 10-day sales tax holidays to help stimulate the economy.

WASHINGTON — The National Retail Federation on Tuesday urged President-elect Barack Obama to support three 10-day sales tax holidays to help stimulate the economy. The move came as the Commerce Department reported that third-quarter gross domestic product fell 0.5 percent.

The NRF suggested in the letter that Obama include the measure in any proposed stimulus legislation. Under the NRF plan, the states would offer sales-tax-free holidays in March, July and October to encourage consumers to spend.

“Retailers’ considerable experience with sales tax holidays has shown that they provide a substantial inducement for people to shop,” the letter said.

The federal government would reimburse the participating states for any lost tax revenue and offer a comparable sum to states that already have no sales tax. By law, the federal government can’t require or encourage the states to change their tax policies. States would choose whether to offer the tax-free benefits and take the federal reimbursement if the plan were adopted.

New York Gov. David A. Paterson recently proposed eliminating the state’s sales-tax exemption on clothing and footwear priced under $110 to raise an estimated $462 million in 2009-10 and $660 million in 2010-11.

The NRF estimated its proposal would cost the federal government between $20 billion and $25 billion. In the same letter, the NRF stated its support for Obama’s infrastructure-based stimulus proposal.

The organization’s request comes amid falling consumer demand that most analysts feel will lead to the worst holiday sales performance in years.

The third-quarter contraction of GDP compared with the second-quarter expansion of 2.8 percent confirmed preliminary estimates, but the composition of the decline shifted. The economic bellwether — measuring the output of goods and services produced by labor and property in the U.S. — was pulled down more by a consumer spending drop than initially expected.

More of the same is anticipated in the fourth quarter. John Lonski, chief economist at Moody’s Investors Service, said steep retail discounts have not done much to buoy sales for the holiday season. He said consumers are nervous and many could be waiting for further discounting after the holidays.

Lonski said additional contraction will be propelled by deteriorating investments in residential housing and capital investments for businesses. A slowdown in exports also could weigh on the economy, he said.

“We are in the midst of the worst recession in the postwar period, even factoring in a massive stimulus program,” said Nariman Behravesh, chief economist at IHS Global Insight.

Behravesh predicted that fourth-quarter GDP would dive 6 percent, even if the Obama administration is able to quickly pass a stimulus package that could approach $1 trillion.