Byline: Joyce Barrett and Jim Ostroff

WASHINGTON — Before retailers had the chance to truly savor the results of Tuesday’s elections and the continued Republican majorities in Congress, Senate Majority Leader Trent Lott (R., Miss.), dropped a bomb Wednesday morning.
Outlining options Republicans are considering in tax reform, which tops their legislative agenda, Lott said a national sales tax or a consumption tax were being considered.
“Is a single flat rate the way to go, or is a consumption tax or a national sales tax a better way to go?” Lott told reporters in a Capitol press conference. “Let’s begin the dialog. Let’s talk to the American people and then do it.”
The idea of a national sales tax or a consumption tax is anathema to retailers, who object to the idea of being the nation’s tax collectors and who fear a tax on consumption will discourage consumer spending.
“We will convince them it’s the wrong alternative,” said John Motley, senior vice president, international trade counsel, for the National Retail Federation. “Moving to a single tax rate doesn’t mean it has to be a bad option for retailers. A national sales tax is a horrible option for retailers, and we’ll have to get in the scrum with everyone else to ensure it doesn’t happen.”
Tracy Mullin, president of the National Retail Federation, noted that a consumption tax could force the economy into a recession and added, “No one wants to see the economy go through seven to 10 years of recession or chaos.”
Cecelia Adams, director of tax, budget and health care for the International Mass Retail Association, reiterated retail’s opposition to a national sales tax and said, “This country has to have some kind of tax collection agency, but we’d hate to see it become retailers.”
Senate Finance Committee chairman William Roth (R., Del.), said in a statement that he plans to begin work immediately on tax reform to “encourage savings, investment and economic growth. Tax relief will be at the top of our agenda. Americans’ taxes are too high.”
Republicans have seized tax reform as their prime issue because it’s a way to counteract the Democrat’s messages, Motley said. He noted that Republican presidential candidate Bob Dole’s plan for an across-the-board 15 percent tax cut was not what the country wanted, and that congressional Republicans were searching for their own answers to reforming the nation’s tax system.
Some options on the table are favored by retailers, such as a cut in the capital gains tax rate and a change in the estate tax to permit store owners to turn their operations over to succeeding generations without prohibitive tax penalties.
Lott indicated that the Senate would attempt to seek a bipartisan consensus on tax reform, which would proceed in two stages: some short-term changes such as capital gains tax cuts and the longer-term “complete overhaul.” He said, “There are some things we can do early on that will make the tax code fairer, maybe provide some growth in the economy without adding to the deficit.”
Since absentee ballots are still being counted, the count in Tuesday’s House and Senate races is still not final. It appears, however, that Republicans have picked up at least one and maybe two seats in the Senate, which would give them a majority of 55. On the House side, it appeared late Wednesday that Democrats may win an additional nine seats to give them 207 to the Republicans’ possible maximum of 226 seats, with two independents filling out the roster. The slight boost in the Senate and the narrower House margin aren’t expected to change the dynamics much on legislation.
“The smaller margins just mean that people will have to create bipartisan coalitions,” said Robin Lanier, IMRA vice president for international trade. “No one will be able to force an issue.”
On trade issues, the administration is expected to make an early request for an extension of fast-track negotiating authority to extend free trade privileges to Chile.
One item on everyone’s agenda will be campaign finance reform, which could impact the trade agenda because of the disclosure of massive contributions from foreigners. Questions have been raised about campaign contributions by Indonesian businessman James Riady and connections of his family-run Lippo Group, a Jakarta-based financial conglomerate, with China. Lippo Group has substantial investments in Hong Kong, which could be damaged if China’s most-favored-nation status was denied. Lippo reportedly pressed Clinton to extend China’s trade privileges this year.
“If it’s true that trade policy may have been tainted by foreign money, they may not be quick to start dealing with it right away,” said Jock Nash, Washington counsel for Milliken & Co., a company known for its protectionist leanings.
Auggie Tantillo, a Washington representative for textile interests and a former textile negotiator in the Reagan administration, also raised the specter of trade becoming entangled in campaign finance reform.
“All of the rumors about investigations have the potential to disrupt the trade agenda,” Tantillo said. “Under normal circumstances I would expect the White House to be pushing an aggressive trade agenda, but the wild card of scandal is there.”
Clinton is expected to seek an early approval of fast-track negotiating authority to facilitate trade negotiations, even though his cabinet is fast evolving.
U.S. Commerce Secretary Mickey Kantor and Secretary of State Warren Christopher both announced their resignations Wednesday. Stuart Eizenstat, now Commerce’s top trade person, is being considered as a replacement for Kantor. In an interview with WWD this year, Eizenstat emphasized his free-trade bent so long as the necessary rules are in place to check cheating.
If China’s trade status does not come under scrutiny by Congressional investigators in their campaign finance reform, its expected that relations between it and the U.S. could improve. Some have predicted that the White House will push to get China admitted to the World Trade Organization and persuade Congress to grant China permanent most-favored-nation trade status. The groundwork for these efforts likely will be laid late this month when Secretary of State Warren Christopher travels to Beijing, following a meeting between Clinton and China’s president Jiang Vemin at a Philippines summit.
On a plan to broaden trade privileges to the Caribbean, some have predicted that the AFL-CIO’s relatively poor showing in knocking off GOP freshmen could give Clinton some wiggle-room should he decide to push the parity issue. It’s not anywhere near the top of his agenda now, though.