Byline: Jim Ostroff

WASHINGTON--A Senate plan that would revamp the nation's tax system and impose a modified value-added levy could provide a competitive advantage for domestic apparel manufacturers as they seek to export, the annual meeting here last week of the International Apparel Federation was told.
The speaker was Ronald Sorini, senior vice president for international development and government relations, Fruit of the Loom. Sorini also served as the chief textile negotiator in the Bush administration.
While the idea of a consumption-based tax puts retailers on edge, Sorini saw things otherwise. "Overall," he said, "the plan would lower taxes significantly for lower- and middle-income families, would spur consumption and make the export of U.S. products more competitive overseas."
Sorini said he expects a tax overhaul bill (S. 722) introduced by Sens. Sam Nunn (D, Ga.) and Peter Domenici (R, N.M.) to be a central issue in next year's general election. One provision of their bill would be to impose a consumption tax of about 17 percent on products imported or manufactured in the U.S. for sale here, while the proceeds from the sale of goods for export would not be included in the exporter's gross receipts for figuring the value-added levy.
"For example," said Sorini, "imported clothing would be subject to a 17 percent tax based on its value at [retail.]" This differs from the value-added tax--or VAT--used in many European nations, where a tax is paid by manufacturers at each stage of production and then by consumers.
The Nunn-Domenici bill also would eliminate the capital gains tax, permit the immediate write-off of capital expenditures and exclude from taxation income to U.S. firms from their foreign operations. The plan would set the business tax rate at 11 percent, but prohibit businesses from deducting their costs for wages and other labor costs.
U.S. retailers since the Seventies have vociferously opposed revenue-raising plans that included any consumption tax, arguing it would be regressive and hurt low- and middle-income consumers the hardest, thus harming retail sales. But Sorini countered that these consumers would end up keeping more of their incomes due to the plan's lower personal tax rates.
The International Mass Retail Association and National Retail Federation remain opposed to any form of a VAT. "It's a cost that will significantly increase the cost of goods for consumers that will not be offset by supposed lower income taxes," said Robert Hall, an NRF vice president. Hall also saw the proposal as creating a double tax on imports--first the import tariff and then the value-added levy.

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