Inside This Issue - Opinion
Tax deal should give retailers needed lift
December 13th, 2010
Whatever one might think of it in political or fiscal terms, the agreement on taxes and unemployment benefits struck by President Obama and Republicans in Congress earlier this month is good news for the nation’s retailers.
The deal, which despite objections from many in the president’s own party, was at presstime expected to pave the way for a two-year extension of all the income tax reductions enacted during the Bush administration and provide assistance for the long-term unemployed for 13 more months. In addition, the agreement envisioned cutting the percentage of the Social Security tax paid by workers from 6.2% to 4.2% for one year, giving businesses more favorable terms for deducting investments in plant and equipment, and extending credits for research and development. Economists say the package, totalling some $900 million, would function as a second economic stimulus.
Reaction from the retail community has been overwhelmingly positive. The response of Leslie Sarasin, president and chief executive officer of the Food Marketing Institute, is typical: "We applaud the bipartisan agreement reached by the White House and congressional leaders, which provides a solid framework that will benefit families and small businesses of all income levels, especially during these difficult economic times. The proposed package will also provide certainty to companies facing important operating decisions for the coming year."
If it is signed into law, the package will buy time for retailers as they await a true economic recovery, one that includes robust job creation. By not altering income tax rates and putting more money in the pockets of individuals and businesses, the measure will help build consumer confidence during the holiday selling season — the most critical time of the year for merchants. That, in turn, would make it much more likely that the positive momentum in comparable-store sales evident in November, when increases almost doubled the expectations of financial analysts, will continue.
Retailers still need all the help they can get. The impressive same-store gains turned in by many of them of late have been generated by heavy discounting and other promotional activity, and they are measured against the low benchmarks of a year ago. At this point, anything that helps convince the consumer to spend is a welcome development.