Byline: Joanna Ramey

WASHINGTON — Imposing a national sales tax to replace the federal income tax has some political clout behind it, but retailers oppose the change and Monday they cited a study explaining why.
The National Retail Federation’s report, prepared by PricewaterhouseCoopers LLP, was released to coincide with three days of House Ways and Means Committee hearings, starting today, that focus on simplifying the tax system.
The study concludes that the potential impact of two long-standing tax overhaul plans before Congress would be catastrophic for retailers. The consumption-based proposals would greatly depress consumer spending, particularly by low and middle-income people, and force retailers and wholesalers to lay off 300,000 to 500,000 workers to remain profitable, according to the report.
The study analyzes two bills. One measure, sponsored by Rep. Bill Tauzin (R. La.), calls for a national sales tax of 15 percent on all goods and services. The other proposal, sponsored by House Majority Leader Dick Armey (R., Texas), would be an across-the-board flat income tax of 20 percent, reduced to 17 percent after two years. Critics claim the flat tax is equivalent to a consumption tax because the number of deductions are limited and thus a consumer’s buying power is curtailed.
According to the NRF study, these tax rates are too low and would have to be increased to at least 29 percent under the Tauzin sales tax plan and 25 percent under Armey’s proposal, based on the current tax compliance rate of 83 percent.
Dick Pines, director of International Tax and Federal Legislative Matters for Sears, Roebuck & Co., said the tax rate for the sales tax plan could go even higher.
“There is a lot of room for evasion of this tax,” said Pines, at a Monday news conference to discuss the NRF study.
While such a drastic switch from the current tax system isn’t slated for immediate Congressional action, simplifying the system is a longtime goal of Republican leadership. Ways and Means Chairman Bill Archer (R., Texas) has long proposed simplifying the tax code, and this week’s tax hearings are one of his last chances to further his point of view before he retires at year’s end.
Although not yet elevated for floor consideration, any discussions of consumption-based tax — and the populist following they engender — makes retailers nervous.
“There are so many senior Republicans who support it and it was part of their (1994) Contract With America,” Pines said. “It is a theme that comes up regularly.”