Retailers Sell Tax Rebate As Good Component In Stimulus (Congress Daily)

By Bill Swindell

While offering a tax rebate to workers might not be on top of the list for much of K Street, the idea has picked up steam with the nation's retail lobby, which argues that such checks could help provide a boost to the economy that is increasingly driven by consumer spending.

The National Retail Federation, the umbrella group representing businesses from big-box stores to small Internet sellers, is supportive of issuing rebate checks to workers, though the group has not officially endorsed the position.

"[The] 2007 holiday sales were the weakest since 2002, and as the new year begins, consumer spending remains sluggish," said Tracy Mullin, federation president. "Consumer spending represents 70 percent of the U.S. economy and has fueled our economy for the past decade. We agree with economists who say the fastest way for a stimulus to enter the economy is through the consumer."

The federation's stance is different than most business groups, which have a long wish list of favored tax items they would like to see enacted to stave off a recession, such as the U.S. Chamber of Commerce's pitch for accelerated depreciation for small businesses, an investment tax credit and corporate tax cut.

Others have suggested industry-specific proposals, such as a first-time homebuyer credit and tax breaks to spur investment in alternative energy.

Democrats have viewed the tax rebate as the best way to help struggling lower- and middle-income families facing a depressed housing market, high gas prices and increased consumer prices that have outpaced wage increases.

Senate Finance Chairman Baucus has floated a $400 rebate for individuals and $800 for families. Treasury Secretary Paulson has signaled his support if such rebates are "broad-based and simple."

The retail federation's stance can provide another argument for rebate supporters: that it will ultimately help businesses.

"It's a matter of timing. We feel it first. We are on the front lines. That's why consumer spending is the leading economic indicator, because we sort of feel it first," said Rachelle Bernstein, tax counsel for the federation.

Bernstein said increased retail sales could spur related wholesale and manufacturer activity.

"It is not a specific tax incentive to our business per se. But when people buy more of our products, then sales go up. Obviously it's helping business," she said. "Retailers, in turn, have more demand for products, more demand for services."

The strong push for a tax rebate for workers marks a contrast from the last time it was considered in 2001.

Sen. Bernie Sanders, I-Vt., who was then in the House, first raised the issue, though many conservatives scoffed at the proposal.

Former Sen. Phil Gramm, R-Texas, joked at the time it would be better to throw money out of helicopters than to pursue a tax rebate. But tax negotiators ultimately agreed to include a $300 individual rebate and $600 household rebate as part of President Bush's $1.6 trillion tax cut package.

Still, some conservatives continue to oppose a tax rebate.

"Temporary consumer tax rebates should not be confused with economic stimulus," said Rep. Jeb Hensarling, R-Texas, chairman of the Republican Study Committee and a former Gramm aide.

"I remain concerned that in the rush to act, an opportunity to put together legislation that will actually grow and stimulate the economy is being missed."

A recent CBO study on the 2001 rebate found that most analysts agreed it stimulated the economy, though they differed on the magnitude of its effect.

One study estimated that households spent between 20 percent and 40 percent of their rebate amount in the quarter it was received.
It also found that families that were young, poor, or had little savings spent a much larger share of their checks than others.

Discussion over the rebate will likely center over the best means for sending money to workers, via check or through changes in withholding of payroll taxes.

Some are concerned whether the IRS could issue checks quickly as it gears up for tax filing season. The IRS needed 10 weeks in 2001 to issue tax rebate checks.

Lawmakers also will have to decide whether to make the rebates refundable, that is whether the full amount of the check would be sent to all who filed returns regardless of the household's tax liability.

Democrats are apt to argue for a refundable rebate, while some conservatives question paying out more in checks than a worker paid in taxes last year.