The National Retail Federation last week urged President-elect Barack Obama to incorporate three national tax-free shopping holidays in 2009 as part of his administration's overall economic stimulus legislation.
"The situation is critical," the 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 proposes that tax holidays be held during March, July and October 2009, each lasting 10 days. The tax-free benefits - covering all taxable goods except tobacco and alcohol - are expected to save nearly $20 billion, or almost $175 per average family.
Unless stimulus to aid consumers is explored, the NRF warned that the retail recession will extend well into 2009.
"It does not appear that these concerns will abate any time soon," the NRF said. "With consumer spending accounting for 70 percent of GDP, it is difficult to foresee an improvement in overall economic growth until consumers regain their footing. Retailers' considerable experience with sales tax holidays has shown that they provide a substantial inducement for people to shop."
An NRF survey conducted
when a national sales tax holiday was considered in 2001 found 82 percent
of consumers favored a tax holiday, 83 percent would take advantage by
making purchases, and 69 percent would make purchases they otherwise would
not have made.
NRF also called for infrastructure
investment in roads, rails, ports, public schools and renewable energy
projects, saying it would have a "double benefit of creating jobs
and repairing systems that are critical to commerce."
Mike Englund, chief economist with Action Economics, told CNNMoney that stores typically see spending drop off a month before the event as people hold off on their purchases. This, in turn, "robs" spending from the surrounding months. "So the benefit to retailers may not be as much as expected."
"From a policy standpoint, perhaps the most effective way to deal with the sales tax issue is to lower the tax rate rather than eliminate it altogether," he said, adding that a lower rate would be an incentive to consumers to shop more while states would still get the revenue to invest in infrastructure development.
Discussion question: What do you think of the NRF's plan for a series of tax-free holidays to help stimulate the economy and its likely impact on consumers? What do you think of the overall benefits of tax-free holidays?