Facing a disastrous holiday shopping season, the retail industry on Tuesday urged President-elect Barack Obama to incorporate three national tax-free shopping holidays in 2009.
The group wants the measure to be included in Obama’s stimulus efforts.
“The situation is critical,” the National Retail Federation (NRF) wrote in a letter to Obama. “In October, consumer confidence was at its lowest level in the 41 years. We urge you to act quickly on legislation to help stimulate consumer spending as one of the first priorities of your new administration,” the NRF said.
Under the industry group’s proposal, which would exclude alcohol and tobacco sales, the federal government would reimburse states for the lost tax revenue. State sales tax rates range from 2.9% to 7.25%, the group said. The five states without a sales tax — Alaska, Delaware, Montana, New Hampshire and Oregon — would also receive monies.
In a letter signed by the chief executives of retail chains, including J.C. Penney Co., Saks Inc. and Petsmart Inc., the NRF warned the situation was “critical,” with consumer confidence in October falling to the lowest level in the 41 years data has been collected.
“Without swift, additional Congressional measures, the current economic weakness could worsen, creating a more rapid downward spiral — beyond what economists are predicting for 2009 — in the years ahead,” the NRF said.
The group said it supports Mr. Obama’s efforts to create a long-term stimulus plan to generate jobs by rebuilding the country’s infrastructure and investing in public schools and alternative energy. However, the NRF said short-term incentives are also needed to encourage consumer spending, which accounts for 70% of the U.S. economy.
In the third quarter, spending by consumers fell 3.7%, the biggest drop in 25 years. The fourth quarter’s results are expected to fall even more.
Rachel Bernstein, vice president and tax counsel for the NRF, said in crafting the proposal the group considered an incentive that would directly and immediately benefit the economy, as opposed to the tax rebate checks sent to consumers last summer, some of which weren’t spent.
But Tom Gallagher, a Washington, D.C.-based economist with ISI Group Inc., an broker-dealer and investment advisory firm, questions whether the NRF proposal would do much to boost consumer spending. “People might just shift the spending they would do anyway to those days designated tax-free,” he said.
Adding to the Borrow-Spend-Panic-Repeat cycle, the Federal Reserve’s approval of GMAC’s application to become a “bank holding company” for the sole purpose of siphoning off TARP funds was approved. Just in time for Christmas, when you weren’t paying attention:
General Motors Corp., days from receiving its first installment of at least $9.4 billion in U.S. aid, won another victory with the Federal Reserve’s approval of lender GMAC LLC’s bid to become a bank holding company.
GMAC’s shift to a bank eases the threat of a default that threatened to dry up credit for GM dealers who used the company to finance about three-quarters of their inventory. GMAC also handled loans for about 35 percent of GM’s 2007 retail buyers.
“This has a positive impact on GM and also the auto market,” Tatsuya Mizuno, director of Fitch Ratings in Tokyo, said today in a Bloomberg Television interview. “The problem is how they can prepare for next-generation vehicles, to restore their competitiveness.”
The Fed used emergency powers on Dec. 24 to grant GMAC’s bank conversion, citing turmoil in financial markets and the potential impact on Detroit-based GM as the biggest U.S. automaker taps emergency federal loans to stay in business.
That decision was the second lift for GM in less than a week, after President George W. Bush said Dec. 19 that GM and Cerberus Capital Management LP’s Chrysler LLC were eligible for U.S. aid to help them avoid running out of cash by early next year, threatening a collapse that would cost millions of jobs.
Like I said: They are all “bank holding companies” now.