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77–330 2002

HEARING ON NATIONAL SALES TAX HOLIDAY:

HOW WILL THIS PROPOSAL IMPACT AMERICA’S SMALL BUSINESSES

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC

NOVEMBER 15, 2001

Serial No. 107–36

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MIKE PENCE, Indiana

MICHAEL FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA, Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on November 15, 2001 ...................................................................... 1

WITNESSES

Graham, Hon. Lindsey, Member, U.S. House Of Representatives ...................... 4

Abercrombie, Hon. Neil, Member, U.S. House Of Representatives ..................... 5

Lav, Iris, Deputy Director, Center on Budget and Policy Priorities ................... 12

Norquist, Grover, Americans for Tax Reform ....................................................... 14

Karl, Elmer, Karl TV and Appliance Store ........................................................... 14

Holland, Elizabeth, Chief Executive, Abbell Credit Corporation ......................... 16

Wilson, Rush, Rush Wilson, LTD ........................................................................... 18

Gornik, Katherine, Vice Chair, Consumer Electronics Association ..................... 20

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 41

Velazquez, Hon. Nydia ..................................................................................... 45

Jones, Hon. Stephanie Tubbs .......................................................................... 47

Prepared statements:

Graham, Hon. Lindsey ..................................................................................... 49

Abercrombie, Hon. Neil .................................................................................... 50

Lav, Iris ............................................................................................................. 53

Norquist, Grover ............................................................................................... 55

Karl, Elmer ....................................................................................................... 58

Holland, Elizabeth ............................................................................................ 62

Wilson, Rush ..................................................................................................... 67

Gornik, Katherine ............................................................................................. 75

Additional Information:

Statement of William Wright, President & Chief Executive Officer, Access

Integrated Networks, Inc ............................................................................. 79

(1)

HEARING ON NATIONAL SALES TAX HOLIDAY:

HOW WILL THIS PROPOSAL IMPACT AMERICA’S SMALL BUSINESSES

THURSDAY, NOVEMBER 15, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 10:06 a.m., in room

2360 of the Rayburn House Office Building, Hon. Donald Manzullo

[Chairman of the Committee] presiding.

Chairman MANZULLO. We are going to call the Committee hearing together because Senator Murray has arrived, and I promised

her as soon as she got here we are going to start her testimony and

we are going to do that right now, Senator Murray, even before any

opening statements, to accommodate you. And then we will have

opening statements later on. I look forward to your testimony.

Thank you.

STATEMENT OF HON. PATTY MURRAY

Ms. MURRAY. Well, thank you very much, Mr. Chairman. It is an

honor to be here with you and Ranking Member Velazquez and all

the members of this Committee who will join you as you go along.

I appreciate you holding this hearing on what I think is a very important idea. I want to thank all of you today for allowing me to

talk about how a national sales tax holiday can help our country’s

small businesses through these tough economic ideas.

This idea, Mr. Chairman, has won a lot of support across the political spectrum. I want to thank Representative Blagojevich and

Representative Graham who are here today and Representative

Abercrombie for their work here on the House side. I also want to

mention Congressman Baird who has worked with me on this. He

has introduced legislation to allow citizens in states like Washington to deduct sales tax from their federal tax returns. And I

know he is going to be here later and I thank him as well.

Mr. Chairman, last week I was pleased to introduce S. 1643, The

Sales Tax Holiday Act of 2001, with Senator Snowe. We have 14

cosponsors, including Senators Lieberman, Santorum, Dorgan,

Thurmond, Durbin, Craig, Cleland, Bond, Feinstein, Johnson, Warner, Mikulski, and Carnahan. I think that is an impressive list of

bipartisan senators. And I think we have come together on this

issue because we all know that our economy really does need a shot

in the arm.

2

The GDP is declining, consumer confidence is at a seven-year

low, and consumer spending has slowed to its lowest level in eight

years. But consumer spending is just what our economy needs to

get it going. In fact, two-thirds of our economy depends on consumer spending. The Sales Tax Holiday Act will get Americans

back into our stores and will help get our economy back on its feet.

The Sales Tax Holiday will help consumers and businesses save

money on everything from cars and computers to books and baby

clothes. It will boost retail sales and consumer confidence and it

will help everyone in the retail chain, from small businesses on

Main Street to anchor stores in large malls.

Mr. Chairman, this National Sales Tax Holiday is immediate.

Every American can take advantage of it, and it won’t break the

bank. It will directly stimulate our economy by boosting sales and

supporting retail, transportation, and manufacturing jobs throughout the country.

As this Committee knows well, even before September 11, this

was shaping up to be a very difficult time for retail businesses and

the thousands of workers that they employ. Many small businesses

rely on the holiday season to make it through the entire year. And

many workers count on having retail jobs during the holiday season. Our bill helps both. Seven states plus the District of Columbia

have used sales tax holidays and they have had great results.

Here is how our bill works. The tax holiday would run for ten

days, from November 23 to December 2. The Federal Government

will reimburse states for lost sales tax revenue. Right now, we estimate the cost of this to be about $6.5 billion, depending on how

many states participate and how strongly consumers respond. Under our plan, every penny of this $6.5 billion will go directly

into the economy. Every state that participates in the holiday will

receive a quick payment of their estimated lost revenue. Before the

tax holiday, a state can decide that it wants to be reimbursed for

the exact amount of its loss. Those states that ask for an exact accounting will go through a reconciliation process with the Federal

Government after the tax holiday.

I believe the Sales Tax Holiday Act can be an important part of

a balanced economic stimulus package. Our proposal will stimulate

economic activity and consumer confidence. States and businesses

that have participated in sales tax holidays report an increase in

sales during the sales tax holiday. These businesses have found

that consumers don’t just shift their spending to the holiday period,

but that these holidays create new spending that would not have

otherwise occurred.

Our proposal will stimulate business investment and job creation. Retail businesses will need to boost their inventories to prepare for larger crowds. That is good news for manufacturers, distributors, and other businesses that help meet consumer demand

for all kinds of products.

Our proposal benefits all Americans. Low, middle, and upper-income people, all pay sales tax on the products they buy. And since

the sales tax is the most regressive kind of tax, lower-income consumers will benefit the most.

Mr. Chairman, our proposal is fiscally responsible. This proposed

tax day holiday will last for no more than ten days in any state

3

and, therefore, there are no exploding costs in the long term. In addition, as I mentioned, our proposal will not hurt state and local

budgets. Our plan is optional. So states can choose to opt in if they

want to stimulate their economy.

Mr. Chairman, President Bush has urged all of us, in the wake

of the September 11 attacks, to return to our daily lives and get

back to business. I believe this proposal will get our country back

in business. It is fair. It is responsible. It will help families, and

it will stimulate our economy.

And I just want to say one more thing. The time to act is right

now. We cannot afford to have a bad holiday shopping season. That

could drag our economy down into next year. Retailers and consumers need time to prepare for this proposed holiday. So we, in

Congress, need to pass it now. So I thank you, Mr. Chairman, your

Ranking Member, and all your members for the opportunity to testify today. And I look forward to working with all of you to pass

this very important legislation. Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you, Senator. To expedite your

time, I want to open the Panel here to see if any members have

any questions of Senator Murray. Otherwise, I will excuse you. Do

you have time for a couple of questions?

Ms. MURRAY. Yes, I do.

Chairman MANZULLO. The question is, Senator Murray, is

Thanksgiving is next week.

Ms. MURRAY. Yes.

Chairman MANZULLO. And this would be set to take place on the

Friday after that. And in the Senate yesterday, was this made part

of the Senate Majority Proposal and voted down or could you tell

us——

Ms. MURRAY. No. We intended to offer it as amendment on that

proposal that was presented to the Senate last night. But we are

in a state of limbo at this point to see how that is going to proceed.

Chairman MANZULLO. Okay. I guess my question would be, and

perhaps the suggestion is that in the unlikely case that this cannot

be enacted ready to go the day after Thanksgiving, that it would

be my suggestion—and I think that you and Lindsey would concur—it would be to prepare a package to get out all of the stumbling blocks or any of the problems that the governors may have

so that if Congress decides to use this, it could pass immediately

and be implemented with the full blessings of the governors. Would

that be a good suggestion?

Ms. MURRAY. Indeed. I believe some states have already moved

to have provisions made that if this passes they are immediately

ready to move forward on it. And I think if other states do that,

that will help put some pressure on all of us here to get it done.

Chairman MANZULLO. That is great. Look forward to working

with you and thank you for coming to our hearing this morning.

Ms. MURRAY. Thank you very much, Mr. Chairman. I appreciate

being here.

Chairman MANZULLO. Thank you, Senator.

Ms. MURRAY. Thank you, Lindsey.

Chairman MANZULLO. Okay. Let us finish with the Panel of the

members and then we can go into opening statements. Congressman Graham.

4

STATEMENT OF HON. LINDSEY GRAHAM

Mr. GRAHAM. Thank you, Mr. Chairman. If this thing takes off,

it will be due in large part to this hearing. The momentum for the

bill is building. We have 39 cosponsors in the House and growing.

And Neil and I have been marketing a little bit on the Floor, but

people have been coming up to us wanting to sign on the bill because our retailers and Chamber of Commerce, NFIB, and other

business groups are really getting behind this bill. CEOs of retail

sales organizations have said this will help.

The message I want to leave the Committee is, with your involvement, in a bipartisan fashion, of the Ranking Member and everybody on your Committee, if we could sort of organize our efforts

here, because you are on ground zero, I think, of the issues facing

the economy in the short term. And that is, small businesses. We

are going to do many things for folks that need healthcare that are

out of jobs. That is going to happen. We are going to spend some

money and we are going to cut taxes to corporations. But people

that have businesses in the mall, on Main Street, USA, they need

some help and they need some help now.

The report that came out yesterday about increase in retail sales

for October was the largest increase in, I think, since record-keeping. It was all due to the car sales. And what happened was that

the retail car industry said, if you will come in and buy a car, we

will give you zero-percent financing. Well, that hook worked. I

mean, tremendous boost in car sales that created a boost in retail

sales across our economy. This is a similar type hook that goes far

deeper than zero-percent financing.

And, as Senator Murray said, if we do not have a good holiday

shopping season, we will be paying the price as a country for well

over a year. This is the first time we get to evaluate the strength

of our economy post-September the 11th. And in a bipartisan fashion, we need to rise to the occasion. There are so many things we

disagree with on about how to jump-start this economy, but when

you have me and Senator Murray and Neil sitting at the same

table, that is a pretty good start.

The comments since—— Mr. ABERCROMBIE. Larry, Curly, and Moe.

Mr. GRAHAM. That is right. And I will let you pick who is Curly.

But that is good news. And the fact that you and the Ranking

Member are having this hearing, I think, is good news. Because

this is a method that works based on pretty good data in the past.

I am from South Carolina. We have a sales tax holiday for backto-school shopping. There is some shift of buying, but there is an

overall net increase.

People respond to a good deal. Two hundred and fifty million dollars increase in sales during the weekend we had before school

starts. If you go back, clothing supplies—excuse me—clothes and

school supplies for your children tax free, sales tax free, there is

a tremendous bump in sales. So seven states, including Texas,

where our President is from, have engaged in this type of activity

in the past. And the results are in and it is very, very positive.

Of all of the ideas that our floating out there, this, to me, makes

the most sense because you don’t get the benefit unless you buy

something. This is not a rebate that we don’t know where the

5

money is going to go. The only way a consumer gets the benefit of

this tax break is to go out there and buy something. So it kind of

combines spending and tax breaks all in one.

And we have a magic moment here in time to do something constructive that will help the economy in the short term which will

turn around, I think, the economy in the long term. And if there

was ever time in our Nation’s history where the public needs to

look at these two bodies to say that they are on the—that their

working together for the common good is now. And to me, people

can understand this. They would respond to it. That $6.5 billion

dollars is very affordable. And it would be a shame not to do this

because it has worked in the past, it will work now, and it will help

us in many, many ways.

Americans need to have something to look forward to this holiday season and something to get excited about. And I can only

imagine the marketing that would go into a bill to this concept.

There is nine more days left. There is eight more days left. Come

out and shop. Get a one-time good deal. Yeah. I think it would create a lot of excitement and a lot of sales and really help the economy.

And, Mr. Chairman, if we work together and we work quickly,

we can do this. If we have to slip the ten days to another ten-day

period during the holiday shopping season, so be it. But it would

be a shame and, I think, a missed opportunity if we don’t pass this

legislation. And I want to thank you for having the hearing.

[Mr. Graham’s statement may be found in appendix.]

Chairman MANZULLO. Well, thank you. From the great State of

Hawaii, Congressman Abercrombie.

STATEMENT OF HON. NEIL ABERCROMBIE

Mr. ABERCROMBIE. Thank you very much, Mr. Chairman. I would

like your permission to submit a formal statement.

Chairman MANZULLO. All the statements of all the witnesses and

all the members will be admitted to the record without objection.

Mr. ABERCROMBIE. Thank you very much, Mr. Chairman. And I

would just like to comment informally, very briefly, and it is just

a commentary, because I certainly am in no position to instruct you

or the other members on this area. I think we all understand it.

I want to echo one thing that Mr. Graham said, which is the appropriateness of this Committee taking the lead here. I think this is

an opportunity, Mr. Chairman, for—particularly for the majority

now—and I am speaking to you as the Representative of the small

business for the majority because you control the agenda.

I mean, fundamentally, when we all try to work together on all

kinds of things, and that is the only way we can succeed in the

House of Representatives, is by acting in concert as much as possible. Nonetheless, the plain fact of the matter is—a political fact

of the matter is, is that the majority controls the agenda, and that

is why I am hoping that you will be able to prevail with the leadership in the majority to get this scheduled as quickly as possible.

I am going to assume that this is going to pass with some appropriate variations or alterations as need to be made to accommodate

the states or the other localities so that they can utilize this if it

passes.

6

And the reason is, is that there is no language to which I am

sure you subscribe, as well as every experienced politician in the

room, if you are explaining your reason. Now, the stimulus package, whether it is the Democrats or Republicans—and I can speak

knowledgeably about it because I voted against both of them—and

for me it is a good and sufficient reason. And it is because it is too

damned difficult for people to understand.

Anybody try to explain lately to a group of folks who are going

to try and pay their bill in the next 60 days or keep their employee

health insurance over the next 60 days or try to keep from laying

off four or five people in their small business, what the hell the alternative minimum tax has to do with their prosperity, with their

ability to pay those bills? You can’t explain to the public.

As Mr. Graham indicated, and I am sure the Senator did, you

don’t have to explain this to the public. You have to market it.

That is all. Let them know that it is available. Nine days, ten days.

It is a smart thing. This is time-sensitive and time-crucial.

And I am hoping that this can be—that you folks can pass this

today, hopefully, and get this scheduled and get it on the Floor and

put the pressure on the Senate. Even to pass it as a stand-alone

bill, separate and apart, if necessary, from the question of the overall stimulus and all the high rhetoric that is floating around here

about long-term economic trends and all the rest of it. What we are

interested in here is the short-term capacity of the people of the

United States to understand that they are going to be immediately

addressed by this legislation.

And I think you have a rare opportunity, Mr. Chairman, to be

a keystone in what could very well be the difference between not

just profit and loss, but survival of the retail businesses and everyone associated with those retail businesses in terms of their employment and their capacity to sustain their families. And that is

what this bill provides.

And I am very, very grateful for the opportunity to be working

not just with you and other members of the Committee, but Mr.

Graham and others. This is not a partisan endeavor. This is an

American endeavor. This is something for us, as the people’s representatives, to take the lead on. And I am confident that if we can

pass this, this will literally make the difference for survival for literally tens of thousands of small businesses throughout this country. And, by extension, hundreds of thousands, or even millions, of

people as to whether they are able to sustain not just their capacity

to deal with their everyday economic and fiscal responsibilities as

families, but whether or not they are going to have the confidence

and the hope, realize that we are going to get through this immediate situation.

We are not dealing with abstract world issues. We are not engaged in a philosophical discussion. We are not dealing with mega

politics here. We are dealing with the capacity of the average

American family to be able to sustain itself and have the confidence that this Congress is going to be immediately responsive to

their immediate needs.

And I think that this Committee, through the passage of this bill,

can be a fundamental element in seeing that that kind of confidence is restored and that kind of literal economic advancement

7

is made in this holiday season. Thank you very much, Mr. Chairman.

[Mr. Abercrombie’s statement may be found in appendix.]

Chairman MANZULLO. Thank you. I got a couple of questions.

The—perhaps Congressman Graham, you would know the answer

to this. Do people withhold shopping until the tax holiday begins?

What have the studies shown in the seven states?

Mr. GRAHAM. In South Carolina, this is, I think, the second year.

People’s behavior is definitely altered by the good-deal nature of

this. But the issue, does this just displace consumer purchases, is

a question, I think, there is a mixed answer somewhat, but overall

there is a net increase. In South Carolina there was a net increase

beyond just displaced shopping of $250 million.

And let us just say that people would buy something—they were

going to buy in January, but they buy it during the holiday season.

That is a good thing now. Because 40 percent of our retail small

business income comes during this period. And, as Neil said, people

are deciding whether to hire holiday help. And they are deciding,

some of them, if they don’t have a good holiday season, they are

not going to up in January. So our data is pretty strong that people

respond above and beyond their normal buying capacity and they

will make an extra purchase because it is a better deal than they

would have otherwise and they will buy up the latter.

Car sales in Washington have sort of leveled off in the State of

Washington because people are waiting to see if we will do this.

And if you are buying a car in some states, it could be up to 14

or $1,500 off the purchase price because of the sales tax.

Chairman MANZULLO. The Texas comptroller reported that con- sumers purchased $400 million worth of tax-exempt clothing during last year’s tax-free holiday, double the typical sales of an equivalent week in August. And in August this year, when both Maryland and Washington had holidays, one national retailer saw sales

increase 35 percent over the same week last year. So overall, net

sales would be up.

Mr. GRAHAM. Well—— Chairman MANZULLO. And that is the bottom line.

Mr. GRAHAM. Yes, sir, Mr. Chairman. One computer company

had 1,000 percent increase in sales during the sales tax holiday period.

Chairman MANZULLO. That is why the computer people are going

to testify right after you.

Mr. GRAHAM. Right. And it—and just put yourself in the average

person’s shoes. You are talking about buying a big item and you

are waiting and seeing. And if you can save 40, 50, 100 bucks on

a big item, you are going to do it. And people wonder, can legislators respond to this? Can they get their act together to opt in? I

would hate to be in a legislative body that couldn’t meet to decide

to cut taxes for the benefit of the consumer. So none of the hurdles

that I have heard are real. People respond. States will respond. We

just need to respond. And with your leadership, I think we can get

there.

Chairman MANZULLO. There is a—— Mr. ABERCROMBIE. Mr. Chairman——

Chairman MANZULLO. Yes.

8

Mr. ABERCROMBIE [continuing]. May I just—— Chairman MANZULLO. Of course.

Mr. ABERCROMBIE [continuing]. Follow on that very quickly. I

want to re-emphasize or reiterate my point. Much of this is going

to be psychological. I don’t know that any of us can predict in any

given constituency—and by constituency, I mean, like category of

purchase—you know, of dishwashers or another television set or

what—that or clothes or shoes for the kids—that in any given instance, you will be able to predict exactly what is going to happen.

But I know one thing for sure that will happen—is if we act on

this and publicize this, that everybody will understand it immediately and they will take from it that the Congress is doing something. And not only doing something in the abstract, but doing

something for them right now that addresses their immediate family needs. And that is probably as important as anything else because then you can do the marketing or the explaining on top of

that.

Chairman MANZULLO. It is easy to understand and it is self-executing. Let me ask this question. If—I know CBO scored this as

$6.5 billion and they used static scoring.

Mr. GRAHAM. Right.

Chairman MANZULLO. But if overall sales increase, how much

more in federal income taxes will come in from the retailers? Does

anybody know? Or from the manufacturers of these items?

Mr. GRAHAM. The good news is, Mr. Chairman, that—— Chairman MANZULLO. A lot of people are I don’t know—they

said, yeah, CBO—you got it right in Congress, but it is static—static.

Mr. GRAHAM. Yeah. But that is a great question because we are

assuming—and I guess we are all being conservative—we are assuming there is not going to be any economic benefit to the Treasury. It is all going to be a $6.5 billion dollar loss. The truth is,

there will be an economic benefit. No matter what CBO says, you

and I know that when sales go up, people get employed in greater

numbers. There are more people paying taxes. There will be some

offsetting of that.

But let us just say $6.5 billion and everything is static. It is

about ten percent of the number we are throwing around here to

help the economy. And there is a world of difference on different

ways to help the economy, but it seems to be a world of agreement

here. The White House is getting very warm to this idea. I talked

to Alan Greenspan, who is very intrigued by it.

But the main thing is, as Neil said, people can understand it.

And we have a very limited opportunity here to do something constructive that people can understand, and it is about ten percent

of the number we are throwing around. And, gosh, I just hope we

can do it. And if—I think you all guys are the key.

Chairman MANZULLO. I appreciate it. Ms. Velazquez, do you

have any question?

Ms. VELAZQUEZ. No. I don’t have any questions.

Chairman MANZULLO. Anybody else have any questions? Oh. I

am sorry. Democrat side—Bill, do you have any questions? Congresswoman Tubbs, do you have any questions?

Mrs. TUBBS-JONES. No questions——

9

Chairman MANZULLO. Okay.

Mrs. TUBBS-JONES [continuing]. Mr. Chairman. Thank you.

Chairman MANZULLO. Go ahead.

Mr. SHUSTER. I just have a statement. First of all, I would like

to commend Mr. Graham and Mr. Abercrombie. I think this piece

of legislation is what the economy needs. And I can speak to it as

a small business owner or as a retailer. I own an automobile dealership. And what is happening right now because of this legislation

are people are putting off their purchases because they want to see

if they can save the 1,400 or $1,500.

So I think it is going to have a huge impact. And I just urge the

Chairman to let us move on this quickly so that we can see it get

out there and generate more sales. Right now, in my business,

about five to seven percent of the sales are being put on hold, we

believe, and I am getting calls from all over the State of Pennsylvania, saying the same thing. Is this thing going to come? So I

think we need to, again, act on it and act on it quickly. I think it

is just what the economy needs.

Chairman MANZULLO. Will the gentleman yield for a second?

Mr. SHUSTER. Sure.

Chairman MANZULLO. The—what is intriguing about the zeropercent financing on the automobiles and trucks—and I don’t know

how long that can go—but that has created a whole new market

for people who were not looking for—— Mr. SHUSTER. Yes.

Chairman MANZULLO [continuing]. For automobiles. I was down

at an automobile dealer—— Mr. SHUSTER [continuing]. Yes.

Chairman MANZULLO [continuing]. Sat in a silver pickup truck,

4x4, I can see myself out on the farm. I could envision driving a

truck whose color is the same as my hair. And I dreamed about

being able to trade in my 1994 Buick Roadmaster station wagon

with 98,000 miles and buy a brand new pickup truck for 300 bucks

a month for the next five years. I have to convince my wife. That

is a hurdle that this Committee cannot cover. But when you look

at, in Illinois, about six-and-a-half to seven percent in sales tax, on

a $20,000 vehicle, that is $1,400. But people also have to weigh, of

course, how long the zero-percent financing is going to—I mean, I

would—if I were going to buy, I would buy now. Then I would keep

on buying once the sales tax holiday goes into effect.

Listen, we really appreciate——

Mr. ABERCROMBIE Mr. Chairman, can I add——

Chairman MANZULLO. Yes. Of course.

Mr. ABERCROMBIE [continuing]. Just a quota to that.

Academic——

Chairman MANZULLO. Oh. I am sorry. Oh. I am sorry. I thought

you were finished, Mr. Shuster.

Mr. ABERCROMBIE. Oh. It is your time.

Chairman MANZULLO. I beg your pardon.

Mr. ABERCROMBIE. I yield back. But again, I just want to stress

that I think this is a—— Chairman MANZULLO. You might want to recognize him because

it is your time.

Mr. ABERCROMBIE. Yes.

10

Mr. SHUSTER. Okay. Go ahead.

Mr. ABERCROMBIE. Thank you, Mr. Shuster. A follow on that,

and as a democrat, because I want to emphasize that this is I don’t

want to say bipartisan—it is nonpartisan. In the sense that I believe—and I want to state for the record—this is a revenue generator. I know that the CBO, whoever it is—I mean, but, you know,

economists are people who have a job telling you why you can’t

have one or don’t have one or likely will not have one. And why,

overall, statistically that is a good thing. You know, so I don’t

worry about that.

What we have got to do here—we are the people’s representatives. We are the ones that are elected. And I think that common

political sense tells you this is a revenue generator, because people

are going to do things they would not otherwise do. That is why

I think things like the spousal travel deduction or business meal

entertainment deduction—people who have never worked before,

except as economists, don’t understand how the economy operates.

They deal in abstractness.

I live within an economy that is based on service and we understand that. And the automobile dealers in Hawaii get their business from people who work in the service economy, who wait on tables, who provide the food for the tables in restaurants, who understand what it is to keep a hotel opened, transportation back and

forth from the airport, and so on, and so forth. And that generates

taxes. That generates revenue for government at all levels.

And that is my last point. This is not just going to go to the

state. This is going to generate revenue all the way up and down

the line and enable cities and towns and villages to be able to keep

their property taxes going in the way that we will be able to sustain them as well. If we don’t do this, you are going to see the collapse of all kinds of people being able to meet their mortgage payments and all the rest of it. This is going to be a revenue generator, Mr. Chairman, not something that diminishes revenue.

Chairman MANZULLO. Do you yield back your time?

Mr. SHUSTER. Just amen.

Chairman MANZULLO. Thank you.

Mr. ABERCROMBIE. We all said amen.

Mr. SHUSTER. And this is a—I have been here six months and

this is, I think, the most common sense piece of legislation I have

seen. My big concern in six months is I have also seen, as we move

pretty slow, we need to move very, very quickly on this to get it

in play.

Chairman MANZULLO. Thank you.

Mr. SHUSTER. So thank you.

Chairman MANZULLO. Mr. Davis, do you have any questions?

Mr. DAVIS. Thank you, Mr. Chairman. I don’t really have a question. I just want to thank the gentlemen for coming to testify. As

a matter of fact, I am a cosponsor of this legislation. I, too, believe

that it is a common sense. It stimulates the economy. It helps to

move things around. It causes people to put resources into action.

I am not an economist, but I am one who believes that if you really

want to stimulate the economy, that you don’t just take—my mother was a good soup maker. And I never saw her stir the top of the

11

soup. She generally went deep down and took the spoon and stirred

it up, which meant that you shook up everything in it.

And if you can get people to moving and spending and transferring and interacting, then I believe that we are going to get some

stimulus and we are going to get the stimulus that we need. And

it is a good piece of legislation, and I thank the gentlemen for coming to testify.

Chairman MANZULLO. Thank you. Anybody else wish to be recognized? Okay. Well, thank you two very much.

Mr. ABERCROMBIE. Thank you, Mr. Chairman.

Chairman MANZULLO. Congressman Baird, who is a member of

this Committee, is coming shortly. He is at another markup. So we

appreciate your coming to testify.

Mr. GRAHAM. Thank you very much.

Chairman MANZULLO. And if the next Panel would please take

their seats, we can get started then. Mr. DeMint, do you have a

witness here that you would like to introduce from your home district?

Mr. DEMINT. I would love to. Thank you, Mr. Chairman. I would

like to introduce a friend of mine from Greenville, South Carolina,

Rush Wilson. Rush, thanks for being here today and thank you for

letting me go out of order here. Again, he is Vice President and

Manager of Rush Wilson Limited. He helps to dress the bestdressed people in Greenville, but he has been very involved with

the community in a lot of different ways, as well as the Independent Stores Board of Directors, National Retail Federation. And

we are in the Greenville Rotary Club together, and so we have

been involved with a number of projects. He is past President of

both the Greenville Downtown Merchants Association and the

Carolinas-Virginia Clothiers Association. So, Rush, I know you— you know what it is about on the ground floor out doing business

at retail. So I look forward to hearing from you today and, thank

you very much for coming.

Mr. WILSON. Thank you.

Mr. DEMINT. I yield back, Mr. Chairman.

Chairman MANZULLO. Well, thank you. And then I think Mr.

Thune has a witness—that as soon as he comes, we will have him

introduce that witness. Okay. Let us—the—I am going to put my

opening statement in the record and I think, Ms. Velazquez, you

want to do the same thing.

Ms. VELAZQUEZ. Correct.

Chairman MANZULLO. Thank you.

The—let us start here with Ms.—is it Lav? How do you pronounce it?

Ms. LAV. Lav.

Chairman MANZULLO. That is pretty simple, isn’t it, to pronounce. Ms. Lav, could you—Grover, could you move the microphone over, and if you could place that sort of close to you, we

would appreciate your talking into it. Is it Ms. Lav? That would be

correct.

Ms. Lav is the Deputy Director of the Center on Budget and Policy Priorities. And we have got a little clock here that shows about

five minutes. And if you could stick as close to it as possible, we

would appreciate it. And we look forward to your testimony.

12

STATEMENT OF IRIS J. LAV

Ms. LAV. Thank you, Mr. Chairman. Mr. Chairman, and members of the Committee, I thank you for the opportunity to testify

today on the proposals to create a federally designed state sales tax

holiday.

Now, I would begin by saying the impulse behind sales tax holiday proposals does make sense. One of the best ways to boost our

flagging economy now would be to stimulate consumer demand.

There is no question. But a national sales tax holiday has such significant problems that it would sharply limit its effectiveness.

The first problem is timing. I think no one should support a sales

tax holiday on the assumption that we can boost sales in the

Christmas season of 2001. It just can’t happen.

You know, if Congress were to enact a holiday even today, which

it is not about to do, each legislature would need to meet to enact

the plan for the state. Governors can’t do this. Most state legislatures are not in session until January or February. Of course, you

can call a special session, but there are time requirements and they

carry substantial costs.

Once a legislature acted, state revenue departments would need

to act—write regulations to adapt the holiday to their own sales

tax systems. It doesn’t happen automatically. And this is far from

a trivial task. Phrases such as sales tax or tangible personal property or even food, that sounds simple in federal legislation, are

quite difficult to apply in each of the different state sales tax systems.

And once the implementation details are settled, then the state

needs to go out to the retailers and educate them and the general

public about the holiday. Retailers need to reprogram their machines, train their employees. It is a whole series of steps, each one

of which takes time. That it is not reasonable to expect could be

accomplished in many places before March or April of 2002.

And given the delay, enacting of a sales tax holiday could make

consumer demand during the Christmas buying season worse than

it otherwise would be if you have something that is enacted for

January or February or March, and then consumers delay purchases and—to wait for the holiday.

And, as someone already mentioned, this already seems to be

happening in Washington state, where, because of Senator

Murray’s sponsorship, the sales tax holiday has been widely publicized. The Seattle Times reported on November 8 that some car

dealers are saying they have already seen a drop-off in sales because of the buzz surrounding the sales tax holiday.

A related issue is whether sales tax holidays hold much net benefit for the economy. It is likely that increased sales during the

sales tax holiday are borrowed from periods before and after the

week or so after the holiday is in effect. It is not enough to look

at what happens during the holiday. And a study by the New York

State Department of Taxation and Finance found that New York

shoppers bought no more clothing in the winter of 1997 due to

their holiday than they would have bought anyway. They just

crammed their purchases into the seven-day holiday window. And

that is one of the few studies that really, you know, looks at that

carefully.

13

A fourth set of issues of particular interest to this Committee is

the potential difficulty and cost of implementation of a sales tax

holiday for states and for small businesses. For example, the bills

exclude sales payable with respect to food, tobacco products, and alcoholic beverages. A lot of states that tax some or all of those, they

are not distinguished on remittances retailers make to the state

necessarily. So separate reporting would be a new burden on retailers. So would be reporting on sales during a week rather than a

full month. There is just a lot of examples of things that would be

new reporting burdens.

And we do know that the cost of compliance will be greater for

small businesses than for larger ones. Data from Washington state

shows the cost of complying with state sales tax rules and procedures, collecting and remitting tax, is about six-and-a-half percent

of sales tax for small retailers, but less than one percent for large

retailers. And Washington state also found that the cost of reprogramming point-of-service equipment for rate changes was four

to nine times higher for small- and medium-sized retailers than for

large retailers.

Finally, the federal reimbursement to states for lost revenues

raises a troubling set of questions. The Federation of Tax Administrators, the people that really know what goes on with revenue, has

major concerns about the methodologies that are being considered

for reimbursement. And it actually calculates that the revenue loss

would be more like 9.5 billion to 13.3 billion than the 6.5 billion,

which is the figure I believe the National Retail Federation is

using.

If states and localities are not made whole for lost revenues,

which I view as a high probability, the sales tax holiday would add

to the deficits with which states are already coping. We know already that there will be cutbacks in services and increases in taxes

because of the deficits, and that certainly will affect small businesses.

It is also important to remember that in the recession of the

early 1990s, about half the states raised their sales and excise

taxes to close their budget gaps, to the tune of about $12 billion.

And certainly, if states are not adequately reimbursed, but in any

case, they will be looking at raising their consumption taxes, something that can weaken retail sales. And we have to look at that and

figure what the best way to spend dollars to counteract that.

There are better ways to boost the economy.

Chairman MANZULLO. How are you on time? We are about a

minute over.

Ms. LAV. Oh. Okay. I am sorry. I am a little bit over. So let me

say I think there are better ways to boost the economy and we can

talk about that in questions. And I would just urge you to consider

some of these better ways, rather than this, which is extremely difficult to implement and would potentially be harmful. Thank you.

[Ms. Lav’s statement may be found in appendix.]

Chairman MANZULLO. I look forward to asking you the question.

Thank you very much for your excellent testimony. Our next witness is Grover Norquist. And Grover is the President of the Americans for Tax Reform. I look forward to your testimony.

14

STATEMENT OF GROVER NORQUIST

Mr. NORQUIST. Thank you. Yes. I serve as President of Americans for Tax Reform. We ask candidates for office to take the

pledge against tax increases—213 members of the House, 37 senators, 1,200 state legislators, nine governors and one president

have done so. So we oppose tax increases, but also are generally

a supporter of reducing the tax burden at the federal, state and

local levels.

I think the national sales tax holiday is an extremely good idea.

I would say that what Mae West said about sex was true also

about tax cuts. All tax cuts are good tax cuts; even bad tax cuts

are good tax cuts. That said, this is a good tax cut.

I think it is an extremely good way to go. I am glad it is being

brought up now. I hope it is passed now for this season. But if it

is not able to be done in time, for reasons that have been discussed,

I hope the next time we talk about a significant tax cut that we

include this as well.

It is a big improvement. It is a way to make any tax cut more ‘‘progressive’’ to make sure that we reach out to people who don’t,

perhaps, pay an income tax or a capital gains tax, but make sure

that we get tax reductions for them. I think in this situation, it is

particularly important in building consumer confidence, which is

why I think we should do it now for this year, for this Christmas

season. It is a good idea now. It ought to be considered as part of

future tax reductions.

There are five states without sales taxes—Alaska, Delaware,

Montana, New Hampshire and Oregon. I would hope that we could

come up with some mechanism to allow them, perhaps, to do the

same thing against their gasoline tax or against property tax cuts,

and make some provision for those.

And lastly, I would hope that the U.S. Congress would look down

the road to abolishing federal excise taxes and getting the federal

government out of the excise tax business, leaving that revenue

stream for the states and getting rid of the present excise taxes

that we have on telecommunications and other areas. Thank you.

[Mr. Norquist’s statement may be found in appendix.]

Chairman MANZULLO. Thank you. Congressman Thune, would

you like to introduce the next witness?

Mr. THUNE. Thank you, Mr. Chairman, I would. It is my pleasure and privilege today to have with us Mr. Elmer Karl from Gregory, South Dakota. He is the owner of Karl’s TV and Appliance, Incorporated, and is a past President of the South Dakota Retailers’

Association. Mr. Karl opened his first store in Gregory with $2,000

and a lot of hard work, and has grown his company into a successful chain of retail stores. Today, Karl’s TV and Appliance employs

220 people in South Dakota in ten different stores across our state.

So it is a great pleasure for me to introduce and to welcome to our

Panel today Mr. Elmer Karl.

STATEMENT OF ELMER KARL

Mr. KARL. Good morning, Mr. Chairman, and members of the

Committee. I would like to take this opportunity to thank Congressman John Thune——

Chairman MANZULLO. Excuse me. Could you——

15

Mr. KARL. How about that?

Chairman MANZULLO. Yeah. And bring it up just a little bit closer. There. That is fine. Thank you.

Mr. KARL. I don’t want you to miss this. Anyway, I do want to

thank you for inviting me to testify at this morning’s hearing on

the proposed National Sales Tax Holiday.

As John mentioned, my name is Elmer Karl and I am President

of our company, Karl’s TV and Appliance. Since I started back in

’56, I have implemented a ESOP so we are now an employee-owned

company.

I have served on the Board of the South Dakota Retailers and

have been President for one term. We currently—as John mentioned, we operate ten locations in South Dakota, two in Minnesota, one in Nebraska, and two in Iowa. Many of our stores are

located in cities of less than 15,000 population, so I am well aware

of the difficulties and challenges that the small retailer faces. Our

company advertises extensively, runs monthly retail promotions, to

generate business in a highly competitive situation. So I feel qualified I can express an opinion on how to generate more sales.

I come here today to encourage the members of this Committee,

to work toward the enactment of the Nationwide Sales Tax Holiday. I have read the legislation that is being proposed and, in my

opinion, this holiday would definitely encourage the average consumer to make a purchase during that time. This savings to the

taxpayer would affect virtually everyone and could not help but

jump-start the economy.

Retailers would have to replenish their inventory, which, in turn,

would mean that manufacturers would have to increase production.

Unlike zero-percent interest promotions on durable goods, which

benefit only those consumers with excellent financial strength, this

sales tax holiday would benefit every consumer making purchases

during that time. I do not feel, based on my past experience of running special one-day promotions, that this would slow sales prior

to, or after, the dates of this no-tax period.

In these times of a slow economy, consumers instinctively cut

back purchases to conserve money in case of economic hardship,

such as the loss of a job by a family member. And those of us in

the retail business were already experiencing softening of sales

prior to the horrific attacks of September 11. There is no question

that the events of that day further hurt retail sales and the confidence of the consumer.

While these economic downturns are difficult for the business

community and, in fact, for the Nation as a whole, they are exceptionally difficult for small business communities. Because of inventory overstocks due to slower sales, many are experiencing a slowing of cash flow. Now, this is not easy for any business, but can

be disastrous for even the most fiscally sound business.

I believe that American small businesses are resilient and will

serve and survive the economic downturns as we have in the past.

However, the cutbacks that have been necessary at the retail level

have been felt throughout the supply chain as well. The lower demand for manufactured goods to be delivered to our stores results

in more unemployment and continued recession.

16

Congressional action that spurs consumer spending would be the

quickest, most targeted way to stimulate the economy. You will be

helping to increase the disposable income of consumers through the

savings that people receive on goods that need to be purchased for

the holiday season. This, combined with the reduction in the cost

of merchandise that customers would like to purchase, will encourage additional spending, further stimulating the economy.

I am sure that you have a number of proposals presented to you

to stimulate the economy. However, it appears to me that a Nationwide Sales Tax Holiday would be an excellent use of the stimulus

money. Under this plan, only those that spend money would receive the benefits. This ensures that every dollar that Congress appropriates for this Congress will immediately go directly back into

the economy.

I appreciate the plan to limit this National Sales Tax Holiday to

only ten days so that it will provide a focused, potent infusion of

money without creating a new program that will require more

funding in the future. There may be extra administrative duties for

both the government and especially for the retailer, however, my

feeling is that the retailer is up to the challenge and willing to create an environment to grow the economy.

Thank you for the opportunity to address this Committee today

on this critical issue. I hope that this Committee will take the action necessary to ensure that the Congress will provide consumers

and the economy with this National Sales Tax Holiday. Thank you

very much.

[Mr. Karl’s statement may be found in appendix.]

Chairman MANZULLO. Well, thank you. We appreciate your testimony. You came all the way out from South Dakota. Huh?

Mr. KARL. Yeah.

Chairman MANZULLO. How is the weather out there?

Mr. KARL. Pardon?

Chairman MANZULLO. You got snow?

Mr. KARL. No. We have been 70 degrees.

Chairman MANZULLO. Is that right?

Mr. KARL. Yeah. Last year we had snow.

Chairman MANZULLO. Oh. Okay.

Mr. KARL. We don’t need another year like that.

Chairman MANZULLO. Well, all right. Well, we can’t promise that

here. Okay. The—thank you very much for your testimony.

Mr. KARL. You are welcome.

Chairman MANZULLO. Our next witness is Elizabeth Holland.

She is with—is it called Abbell?

Ms. HOLLAND. Abbell.

Chairman MANZULLO. Abbell. Thank you. Abbell Credit Corporation, which owns some shopping centers. And speaking for—speaking on behalf of the International Council of Shopping Centers. And

we look forward to your testimony.

STATEMENT OF ELIZABETH I. HOLLAND

Ms. HOLLAND. Good morning, Mr. Chairman, members of the

Committee, and fellow citizens. My name is Elizabeth Holland and

I am the Chief Executive of Abbell Corporation, a 50-year-old, third

generation family business focused on real estate investment, deVerDate 11-MAY-2000 07:47 Mar 05, 2002 Jkt 077330 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\A330.XXX pfrm04 PsN: A330
17

velopment, and management based in Chicago, Illinois. Abbell

Credit manages a 1.6 million square foot portfolio comprised of

shopping center, enclosed mall, and office properties, including

Merle Hay Mall in Des Moines, Iowa, and Westgate Village Shopping Center in Toledo, Ohio.

I am here on behalf of the International Council of Shopping

Centers, or ICSC, the global trade association of the shopping center industry. Its 40,000 members in the United States, Canada,

and more than 75 other countries around the world, include shopping center owners, developers, managers, investors, lenders, retailers, and other professionals. The shopping center industry contributes significantly to the U.S. economy. In 2000, shopping centers in the U.S. accounted for $1.14 trillion in retail sales, collected

$46.6 billion in state sales taxes, and employed 10.7 million people.

Thank you for giving me the opportunity to address your Committee today in support of the Sales Tax Holiday Act of 2001.

The U.S. economy is in the midst of a serious downturn that requires additional economic stimulus measures in order to hasten a

full recovery. Consumer spending, which accounts for more than

two-thirds of our Nation’s Gross Domestic Product, plunged 1.8 percent in September, following a small three-tenths of one percent

gain in August. Personal consumption of durable goods fell by 3.2

percent in September, while that of non-durable goods fell by 1.3

percent. Retail sales fell in lock step with the decline in consumer

spending. Total retail sales in September were off by 2.4 percent

from August.

Yesterday, the Commerce Department released data showing

that October retail sales increased by a record 7.1 percent. Most of

that increase, however, was due to a 26.4 percent jump in automobile sales. Sales driven largely by zero-percent financing and

other incentives offered by manufacturers and dealers. Excluding

auto sales, overall retail sales in October rose by a mere one percent. While this increase is certainly an improvement over September’s 2.4 percent decline, it is still relatively anemic compared to

sales growth in prior years.

Furthermore, much of last month’s sales increase may have been

the result of pent-up demand from September spilling into October

and is by no means a guarantee that retail sales will continue to

grow.

This time of year retailers typically hire additional workers to accommodate increased holiday traffic. The retail industry, however,

is one of the sectors of the economy that has been hit hardest by

the dramatic increases in unemployment. The latest figures from

the Labor Department show that retail employment has dropped

during the last three months. In fact, retail employment fell 81,000

jobs on a seasonally adjusted basis in October. This is especially

troubling during a time of year when the number of retail jobs usually increases.

One predictor of future retail sales is the consumer confidence

level. The Conference Board, a New York-based private business

research group, reported that its confidence index fell for a fourth

straight month to 85.5 in October, from 97 in September, its lowest

level. Falling consumer confidence often leads to weaker retail

spending as consumers’ purchasing behavior becomes guided by

18

negative perceptions about the economy and the possibility of impending income reductions or job losses.

It is for this reason that the International Council of Shopping

Centers supports the Sales Tax Holiday Act of 2001. Introduced by

Representatives Lindsey Graham and Rob Blagojevich, H.R. 3172

would establish a nationwide state sales tax holiday from November 23 to December 2 of this year that would exempt from sales

tax all tangible personal property, except food, alcohol, and tobacco,

with no monetary cap.

Our sales tax holiday experience in Iowa is consistent with the

conclusion that sales tax holidays assist consumers at the consumer level. Merle Hay Mall is the oldest, and still the largest,

mall in the State of Iowa. Early in 2000, the Iowa State Legislature

enacted a two-day sales tax holiday to take place at the beginning

of August on clothing and shoe purchases up to $100 in order to

help parents shop for their children before the start of the school

year. The sales tax holiday in 2000 was so successful that Iowa enacted another one for August of 2001.

I know that my time is short, Mr. Chairman, but I would just

like to provide you with our specific sales numbers. We had tremendous sales growth year over year during our sales tax holiday.

In August 2000, mall-wide sales were up 45 percent over the same

month in 1999. Department store sales were up seven percent. Surprisingly, the increases were not isolated to those merchants who

sold goods covered by the tax holiday. Food court sales were up 63

percent; jewelry store sales were up 24 percent; music and electronic sales were up 27 percent over the same period in 1999.

Needless to say, with this tremendous sales performance, we

were hoping just to maintain those levels during the sales tax holiday of 2001. Once again, we were pleasantly surprised. Mall-wide

sales were up 19 percent from August 2000, with department store

sales up six percent. Retailers, such as Old Navy, The Gap, and

American Eagle Outfitters, were up 39 percent. Children’s stores

that include The Children’s Place, Limited Too, Kid’s Footlocker,

and Gymboree, were up an astonishing 92 percent.

Chairman MANZULLO. How are you doing on time? You are a

minute over.

Ms. HOLLAND. Oh. I apologize.

Chairman MANZULLO. That is okay. They are good figures.

Ms. HOLLAND. We strongly support a national sales tax holiday

for this holiday season and urge that one be enacted as soon as

possible. Thank you for the opportunity to present my views. I

would be happy to answer any questions.

[Ms. Holland’s statement may be found in appendix.]

Chairman MANZULLO. Thank you for your testimony. The next

witness is Mr. Wilson who has already been introduced. Mr. Wilson, I look forward to your testimony.

STATEMENT OF RUSH WILSON, III

Mr. WILSON. Good morning, and thank you very much, Mr.

Chairman, and thank you to all the Committee members today for

the opportunity for me to come here and testify.

Chairman MANZULLO. Excuse me. You are testifying on behalf of

the National Retail Association.

19

Mr. WILSON. Yes. I am.

Chairman MANZULLO. Okay. Thank you.

Mr. WILSON. I would also like to thank Congressman DeMint for

inviting me, and also Congressman Lindsey Graham for extending

this invitation. My name is Rush Wilson, III. I am Vice President

and Manager of Rush Wilson Limited, in Greenville, South Carolina. It is a retail clothing store specializing in men’s and women’s

clothing. It was founded by my father 50 years ago.

I am testifying today on behalf of the National Retail Federation,

where I serve on the Independent Stores Board. NRF is the world’s

largest trade association for retail, representing 1.4 million retail

establishments that employ more than 22 million Americans.

I am here today to discuss the concept that has been proposed

to help address the current status of our economy. The ten-day Nationwide Sales Tax Holiday that this Committee is considering is

designed to stimulate our Nation’s economy by providing consumers another opportunity to come and return to our stores.

Simply put, consumer spending accounts for two-thirds of our

Nation’s Gross Domestic Product. Many economists have credited

consumption with sustaining the economy through July and August, even though business investment and construction were declining. In light of this, many experts agree that the fastest and

strongest means to economic recovery is to boost consumer spending.

Second, this proposal will stimulate increased spending by not

only saving people money, but also boosting the morale of the

American consumer. This is a popular proposal and easy that—because it is easy for the consumer to understand, and it provides immediate benefits.

In a recent poll, more than 83 percent of the respondents stated

that they would take advantage of the holiday, and nearly 70 percent said that if the holiday were in effect, they would make purchases they would not otherwise make.

The impact of this holiday would also be experienced outside the

retail community. Reduction in store inventory would lead to an increased demand for manufactured goods. Increased traffic in the

stores and malls would have a dramatic effect on the service and

restaurant industry as well.

In conclusion, I urge you to consider the opportunity you have

before you. With this proposal, you can take a strong, positive step

toward revitalizing the American economy. This one-time expenditure will help lift consumer confidence and spur additional spending. This additional spending will stimulate retail, manufacturing,

transportation, and other sectors reliant upon consumer spending.

As President Bush has stated, there is a role for government in

aiding America’s return to normalcy. By enacting a nationwide

sales tax holiday, Congress can assist in the effort to return our

economy to its previous vibrant state. Thank you very much for

your time.

[Mr. Wilson’s statement may be found in appendix.]

Chairman MANZULLO. And thank you for your testimony. Our

next witness is Kathy Gornik, who is Vice Chair of the Consumer

Electronics Association and the President of THIEL Audio Products. I look forward to your testimony.

20

STATEMENT OF KATHERINE GORNIK

Ms. GORNIK. Thank you.

Chairman MANZULLO. Could you put the microphone there in

front of you?

Ms. GORNIK. I sure can. Is that good? Thank you, Chairman

Manzullo, and members of this Committee. I am Kathy Gornik,

Vice Chair of the Consumer Electronics Association. I volunteer in

this position as the President of THIEL Audio Products Company,

which I co-founded in 1977. Based in Lexington, Kentucky, THIEL

employs 35 people and is one of America’s premier loudspeaker

manufacturers.

THIEL is a member of the Consumer Electronics Association,

CEA, which represents more than 600 companies in the consumer

technology industry. CEA is strongly in favor of H.R. 3172 and its

Senate companion, S.1643, which would provide a necessary, direct

and immediate stimulus to the American economy by creating a

nationwide sales tax holiday.

I am gratified that President Bush and the members of the Committee are considering ways to invigorate the economy. But let me

say it clearly and emphatically, action is needed now. It is essential

that the government move to address America’s uncertainties and

fears about spending money. Of all the ideas for economic stimulus

being considered in Congress, the nationwide sales tax holiday

stands out as the one proposal that would guarantee consumer

spending.

First, a nationwide sales tax holiday will boost consumer spending right when it is needed—immediately, when consumer confidence and spending are down. Consumer confidence is at a sevenyear low, and the GDP has seen its biggest decline in a decade. A

sales tax holiday will help arrest these trends and pump money

into the economy around this critical holiday season.

Secondly, a sales tax holiday is targeted tax relief. It puts money

where it is most urgently needed, directly into the pockets of ordinary taxpaying Americans. Through no fault of their own, American workers are bearing the brunt of this economic downturn. A

sales tax holiday will benefit every American. It is egalitarian, simple, and straightforward. Most importantly, consumers know that

in order to take advantage of a sales tax holiday, they must go to

the store and spend.

Finally, a nationwide sales tax holiday will be effective. As a

small businesswoman, I know all about the price sensitivity of consumers. It is no wonder that statewide sales tax holidays have a

proven record of success.

During statewide tax holidays in Pennsylvania and South Carolina, sales of computers jumped between 60 and 80 percent. Our

survey shows that about half of the consumers in those states regarded the holiday as a major consideration in their purchase. In

addition, roughly a quarter of those surveyed reported that their

purchases during the sales tax holiday were not planned. In other

words, a significant portion of these sales would not have occurred

at all in the absence of a tax holiday.

A tax holiday especially helps low-income consumers, for whom

sales taxes are a proportionately bigger burden. For many low-inVerDate 11-MAY-2000 07:47 Mar 05, 2002 Jkt 077330 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\A330.XXX pfrm04 PsN: A330
21

come families, a tax holiday makes the critical difference in enabling purchases that they would not otherwise be able to afford.

The benefit of a sales tax holiday will extend far beyond my business and the consumer technology industry. Under the proposed

legislation, almost any tangible consumer product could be purchased tax free, except for alcohol and tobacco. Americans would

take advantage of a one-time opportunity to purchase computers,

clothing, furniture, and holiday gifts. A tax holiday would cause a

beneficial domino effect across the American economy, lifting retailers, manufacturers, distributors, and every sector that relies on

consumer spending.

An added bonus is that consumer purchases often lead to additional spending even after the tax holiday period has concluded. In

the consumer technology industry, purchases of speakers, audio

systems, DVD players, and computers tend to generate subsequent

sales of music, movies, accessories, and software.

The bipartisan and broad-based support that the nationwide

sales tax holiday has received is testament to the strength of the

proposal. A diverse range of groups from the Small Business Survival Committee to the Gray Panthers have voiced their support for

the nationwide sales tax holiday as a smart measure that will

boost consumer confidence and business activity.

Members on both sides of the aisle recognize that this proposal

will not only have a beneficial economic impact, it will also send

a signal of confidence to Americans coping with the post-September

11 world, and help lift spirits as we enter the holiday season. Finally, it will send a strong message of resolve to the enemies of

America who are hoping that economic aftershocks of September 11

will tear our country apart.

In closing, I would like to thank and commend this Committee

for highlighting the importance of a nationwide sales tax holiday

to America’s 25 million small businesses. As a small businesswoman, I look forward to getting over this current economic downturn so I can begin rehiring workers and resume growing my company. A nationwide sales tax holiday would provide the temporary,

targeted, and effective relief that America’s small businesses so

badly need. I urge members of the House and Senate to pass nationwide sales tax holiday legislation as quickly as possible. And

many thanks to you again.

[Ms. Gornik’s statement may be found in appendix.]

Chairman MANZULLO. Thank you for your testimony. I would like

now to represent our brother here on the Committee, Brian Baird,

who was scheduled to be on the first Panel. And, Congressman

Baird, I am going to hold you to five minutes also on your testimony and look forward to it.

STATEMENT OF HON. BRIAN BAIRD

Mr. BAIRD. Thank you very much, Mr. Chairman.

Chairman MANZULLO. And all of your testimony will obviously be

made part of the record.

Mr. BAIRD. Thank you very much, Mr. Chairman. I appreciate

the chance to testify. I apologize for not being here on the first

Panel. We had a markup on a piece of legislation I drafted in the

Science Committee.

22

Very briefly, I want to commend the witnesses and the sponsors

of this legislation for their initiative and for supporting what I perceive to be a very important opportunity to stimulate our economy

at a time of significant downturn.

I support this bill for two reasons. First of all, the obvious one

that people have mentioned—the immediate potential stimulus effect, particularly at this key holiday season.

However, secondly, I support it for a reason that may not have

been mentioned, and that is one of fundamental fairness. States in

our Nation that fund their state government activities through

sales taxes are disadvantaged currently relative to states who fund

their activities through income taxes. Income taxes paid to states

can be deducted from federal income tax reform, but state sales

taxes cannot. This effectively leaves a double taxation circumstance

on those who fund with state sales taxes. We have been unsuccessful thus far, though myself and Congressman Clement have endeavored to do so, and Barbara Cubin, on the other side of the

aisle, has introduced similar legislation.

But I believe we should look not only at this sales tax holiday,

but following that—which I hope we will pass this successfully. Following that, I would urge this Committee and the Congress at

large to look at a more broader issue of sales tax deductibility, either deducting sales tax across the board again, as it was prior to

1986, as a stimulus to economic growth, or possibly allowing states

who have no income tax, but only sales taxes, to deduct their sales

tax in an analogous fashion that those who have income taxes do.

The net cost to this is relatively small compared to many other

initiatives that have been put forward. But it is all about fundamental fairness in addition to the economic stimulus element that

has been mentioned so well thus far.

I thank the Chair for convening this hearing. And I hope we can

bring this to the Floor. And, again, I hope we will move on beyond

this to consider broader sales tax deductibility in the future.

Thanks for the opportunity to testify.

Chairman MANZULLO. I appreciate your testimony. I have got

several questions I wanted to ask of Ms. Lav. And I am glad that

I decided to put you first, because my big concern with the bill, although I am a proponent of it, is the implementation of it. I—and

maybe this is more of a statement or a suggestion.

I think, first of all, it would be a mistake for a Congressional bill

to start covering not exceptions. If there is going to a national sales

tax holiday, the state—each state should be allowed to determine

what it is going to tax and what it is not going to tax. Because I

have been involved in retail long enough to know the tremendous

cost of reprogramming those cash registers. It is an incredible

amount. I mean, in Illinois, I think there is a one-percent tax on

processed food. And, on some food, there is no tax, and on some—

I mean, everything that goes through is set up with the—is set up

with that special scanner.

The other—I mean, the other thing that I want to talk about

your testimony is the fact that the states are legitimately concerned that they are paying their bill and then someone is going

to bellyache. Then you got to go through a reconciliation process.

23

So I think if there is going to be a bill, number one, this thing

has to be able to be implemented quickly and easily. And I will be

hanged if we are going to spend any more money on bureaucrats

that get in fights with the governors or how much they are going

to back in the sales tax. If there is going to be a fight, then I will

be the first one to oppose it.

So I am in favor of it. You said you had some suggestions, Ms.

Lav. And, please, go ahead.

Ms. LAV. Well, I mean, I actually—and my suggestions would be,

you know, sort of better ways to go. Because I agree with—— Chairman MANZULLO. Would you agree with me on the—— Ms. LAV [continuing]. If it is going to be—— Chairman MANZULLO [continuing]. Implementation if it is going

to be a bill?

Ms. LAV. I think you could solve—I think you would have to, if

you were to do it, just do it on anything, you know, that—it is very

difficult to distinguish really tangible goods from non-tangible

goods. States tax services. They tax some services that are incidental. To the sale of goods, they tax other kinds of services. Some

tax leases as tangible goods. Some of them don’t. Some of them tax

cars under their sales tax. Some of them have a separate recordation tax. And, you know, if you were to do it, it would not be fair

for the states that have chosen to have the separate recordation tax

to not get—— Chairman MANZULLO. Illinois has both.

Ms. LAV [continuing]. To get, you know—— Chairman MANZULLO. High recordation tax and high sales tax.

Ms. LAV. Right. But some states, you know—— Chairman MANZULLO. Sure.

Ms. LAV [continuing]. Instead of a sales tax, do something else.

They don’t call the—what they—the way they tax cars—their sales

tax. But it is the same rate as their sales tax and it is in lieu of

it. So I mean, I think that one—you—these kind—you don’t—you

wouldn’t want to get these—are very difficult to get around these

complications.

It is very difficult—one of the reasons I am very—I am a little

skeptical of this, despite its good intent, is that for one level of government to tell another level sort of what to exempt and then to

try and reimburse them on some kind of a fair basis, when you

have something that is dynamic where you—everybody agrees you

are going to be shifting sales from before and after into the holiday

window. I mean, there is no one that disagrees that that is what

happens.

And so you don’t know how much to reimburse. You don’t

know—you have to figure out all these complications about

layaways and so forth.

Chairman MANZULLO. Before my time runs out, you had some

suggestions—an alternative stimulus that would be related to sales

or what did you—— Ms. LAV. No. Well, I think—yeah, well, I think what the most— the best—most effective stimulus is to put money in the hands of

low and moderate-income people who have what is called the largest propensity to spend. I am not an economist, but I will use the

economic term. Which is that people who spend the greatest share

24

of every dollar they get. And you can do that by the rebate that

is in virtually all of the bills. You can do that by improving on employment insurance, because you are going to have a huge drop-off

in consumption of people who are losing their jobs. And almost

every dollar that people get in unemployment compensation is

spent.

There is a new idea that is beginning to percolate in the Senate,

which, you know, it is unclear yet whether there are problems with

it, but it might be good, for giving payroll tax. The trick is to not

get so complicated and just put money in the hands of people who

can spend it and do it fast, which is what I would suggest.

Chairman MANZULLO. Okay. Another method to stimulate the

economy by letting people have more control over their money.

Ms. LAV. Yes.

Chairman MANZULLO. Okay. Appreciate that thought. My time

has expired. Or did anybody want to have a comment on my question? Okay. Ms. Velazquez.

Ms. VELAZQUEZ. Thank you, Mr. Chairman. And basically, I am

concerned about this proposal in terms of three areas—its practicality, timelessness, and the benefit of this proposal. And I guess

that, Ms. Lav, you answered the first one—practicality. I just

would like to ask the other members of the Panel, if Congress acts

on this legislation and we pass it next week, we are dreaming. But

if we pass this legislation next week, do you think that every state

in the Nation will be able to put in place the infrastructure that

we need? Yes.

Ms. HOLLAND. I would just briefly like to say that while a number of state legislatures are still in special session, I do know that

last week when Iowa State Legislature was in special session, just

on the off chance that Congress did enact this legislation, they

passed enabling provisions that would permit Governor Vilsack to

immediately opt in and direct the Department of Revenue to take

all measures to participate.

Mr. NORQUIST. I think you would be surprised how quickly state

legislators could act if you gave them the incentive to do so.

Ms. LAV. I would just—most legislatures are not in session right

now. Very few of them are, you know—a little more than a handful.

And I think there are impediments to their coming into session,

particularly at this time of the year. But just the practicalities of

what it takes to do a special session in a state and the notice requirements and so forth.

Ms. VELAZQUEZ. So what do you say to those people who are

right now concerned about the fact that consumers are holding off

in purchasing and spending their money because they are just

waiting for this national tax sale? The National Automobile—they

express concern about this and they are saying that the numbers

are showing that people are not spending because they are waiting

for this to happen.

Mr. NORQUIST. You could solve that—— Ms. VELAZQUEZ. Wouldn’t that have an opposite effect?

Mr. NORQUIST. You could solve that problem by passing the legislation very quickly.

Ms. VELAZQUEZ. I understand that. But what I am saying is that

this is—we need to get all the states——

25

Mr. NORQUIST. Yeah. Well, with CNN and—— Ms. VELAZQUEZ [continuing]. To pass the regulation in order for

people to take advantage of this. And it is just not that easy.

Mr. NORQUIST. With CNN and e-mail, I think most of the state

legislators could figure out very quickly that you guys had done

this and could get to their state capitals, which are not that far

from where they live, within a day.

Ms. VELAZQUEZ. Ms. Lav, do you know of any study that shows

how much this will cost the Federal Government? How much they

are saying this is going to cost.

Ms. LAV. Well, the Federation of Tax Administrators, which represents the people who, you know, administer taxes and revenue

issues in the states, has made an estimate—it is difficult to tell because of, you know, the shifting and so forth, but it looks like it

is in the range, you know, of $9 to $13 billion, something like that.

Ms. VELAZQUEZ. Ms. Holland, you stated in your testimony that

the shopping center industry contributes significantly to the U.S.

economy. In 2000, shopping centers in the U.S. accounted for $1.14

trillion in retail sales, collected $46.6 billion in state sales taxes.

What you are telling me is that you are—that—do you agree with me that this $6 or $9 billion is grossly understated?

Ms. HOLLAND. I don’t know that I agree. I have no question that the people who estimated that it would cost $6.5 billion have much

more information about total retail sales in a ten-day period during

the holiday season than I do. I do know that, in my experience,

consumers who get to stores, even though they think they are only

saving money on children’s clothing and shoes, spend money on

other things. So there is no question that just getting people out

and back to living their lives and spending money like they did previously would be a good thing.

Ms. VELAZQUEZ. But when you give me a number like $46.6 billion in state sales taxes, don’t you think that this $9 billion is understated? Just too low a cost for the Federal Government.

Ms. HOLLAND. Well, it would depend on what percentage of that

state sales tax was collected between Thanksgiving and Christmas.

Ms. VELAZQUEZ. Okay. Ms. Lav, what will be the cost of compliance? You—in your testimony you said that it will be greater for

small businesses compared to larger corporations. Would you

please explain that?

Ms. LAV. Sure. I mean, I think larger corporations just tend to

have more sophisticated equipment. They have a larger—they can

spread the overhead of compliance over a larger number of sales.

It is also the case that, you know—they just make more sales and

they—and then they can more easily comply. It is always the case

that it costs a small business more to comply with the same set of

rules than if you are spreading that compliance over a larger base

of sales. And so whether it is programming cash registers or filing

forms with the government, as a percent of their sales, it costs

small businesses more.

Ms. VELAZQUEZ. Ms. Gornik, yes.

Ms. GORNIK. Thank you for letting me jump in here. I own a

small company and, admittedly I am not a retailer. But I will tell

you that any retailer—and I don’t care how big they are or how

small they are—would leap at this opportunity to provide their cusVerDate 11-MAY-2000 07:47 Mar 05, 2002 Jkt 077330 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A330.XXX pfrm04 PsN: A330
26

tomers with a discount. And they do this all day long. Sometimes

they can do it several times a day. Believe me, these people are

very well—you know, they are competent, they are able to create

adjustments in prices. It is—they—this is part and parcel of running a business, and it doesn’t matter if you are large or small.

The other point I want to say, Ms. Velazquez—and I am sorry

if I am mispronouncing your name—is that consumers aren’t buying right now. Whether they are waiting for us to give them a national sales tax holiday or they are just afraid to buy, they worried

about the economy, the truth is, and the bottom line is, is that they

are not buying. I don’t think that this particular legislation is holding them back.

Ms. VELAZQUEZ. I don’t know you read this article that came out

in the Washington Post, but it is making reference to the fact that

there has been a jump in retail sales, 7.1.

Ms. GORNIK. Right. And the further information on that particular point is that is driven almost entirely by new sales of automobiles. And it is not spreading across the economy to me or many

of the companies represented here.

Ms. VELAZQUEZ. Ms. Lav, what evidence is available which

proves that increases in sales during a sales tax holiday have

translated into the state overall economic improvement?

Ms. LAV. There is very little evidence. And, in fact, the evidence

that exists suggests that it doesn’t. It really—the evidence that— of careful studies suggests that you have shifting of sales into a

sales tax holiday window, but very little overall increase in sales

if you look at a full quarter or a full period, a larger period of time.

So—and so—and if there is not—and even consumers don’t necessarily get the full benefit of it. There is some evidence from research on the floor of the sales holiday that, in fact, retailers, by

giving less markdowns they otherwise would during the period of

a sales tax holiday, capture about one out of every $5. That of the

cost of what, in this case, would be the cost of the sales tax holiday

that the Federal Government——

Ms. VELAZQUEZ. Would you like to comment?

Mr. KARL. Yeah. I don’t—I just can’t agree with that because it

will stimulate sales. And, yes, the merchants are still going to be

competing against one another, and that will not—that money will

go directly back to the consumer, that savings. It will spur sales

and there will not be—we have run promotions that are just oneday promotions and advertise it four or five days in advance. It

doesn’t seem to affect those days prior. It may soften them a little,

but that one-day spike will just wipe out any little anything that

would happen that they wouldn’t buy.

It would be—you know, if I would have to—and having income

tax and we are putting it by sales tax—and right now our sales tax

is down. And we need a shot in the arm.

Chairman MANZULLO. Okay. Thank you. Mr. Shuster.

Mr. SHUSTER. Thank you very much, Mr. Chairman. One comment I want to make about auto—I am an auto dealer, still am an

auto dealer and in contact with the store, and I get updates on

what is happening. And this legislation is causing people to hesitate, but it is also bringing people into the store that said their— that think if it is going to happen, they are going to buy a car. And

27

the key to this right now is that we need to act and act quickly.

And those people will either buy or won’t buy if we enact this legislation. But I think, on balance, it is going to be a big boon to the

economy. It is a one-time deal, and the cost of implementing it, I

think, is minor compared to what it is going to do to the economy.

So just statement, no question. Thank you.

Chairman MANZULLO. Okay.

Ms. GORNIK. I would like to also add a comment that——

Chairman MANZULLO. Go ahead.

Ms. GORNIK [continuing]. That this will not—I would like to take

a longer view of the ripple effect of a national sales tax holiday. We

keep talking about the cost, but we are not talking about the added

benefit that can occur. For example, if a person were to buy a DVD

player, through this incentive, over the ensuing weeks and months,

that person is far more likely to buy DVDs to go with that. But in

our consumer research at the Consumer Electronics Association,

very much supports that. We will see additional revenues generated across the economy. And, hi, Darrell.

Chairman MANZULLO. Hi, Darrell.

Mr. ISSA. Mr. Chairman, I apologize. But the witness knows me

far too well, I am afraid, after about eight years on the same board.

Hello, Katherine.

Chairman MANZULLO. Well, Katherine, thank you for coming in

spite of that. I appreciate—Mr. Pascrell, do you have any questions?

Mr. PASCRELL. I certainly do. Mr. Chairman, I want to commend

those folks who put this in front of us and you allowing us to discuss this today. The more I look into this particular issue—and I

must say, Mr. Karl, you make a lot of sense. I may not agree that

we can get this done in time, or we should. But I think that the

plight that you expressed is something we must address. There is

no two ways about it. Whether this is the stimulant that we

want—because all states have the ability, and most states, have

the ability to do this, to have done this. Some have already done

this in past years and in this year.

What is very different, very different, about 3172 is that we talk

in 3172 of reimbursement. Now, Mr. Norquist said some very interesting things today and I would like to ask you some questions

with your permission.

Mr. NORQUIST. Sure. Is this about Mae West?

Mr. PASCRELL. No. I will ask the questions, Mr. Norquist.

Mr. NORQUIST. Sure.

Mr. PASCRELL. Where do you suggest we get the $6.5 billion of

reimbursement to the states, 80 percent of which must be provided

at a certain time, and the other 20 percent later on? Where do you

suggest we get that money? And have you located that money in

the federal budget?

Mr. NORQUIST. No. You are talking about general revenues. And

this is coming in the context of overall tax cuts that the House and

the Senate are looking to pass.

Mr. PASCRELL. So there is no money in the budget right now

which addresses this particular issue.

Mr. NORQUIST. No. You would be appropriating that. Correct.

28

Mr. PASCRELL. Now, if I had to make a decision, and you tell me

whether you agree or disagree with me—if I had to make a decision

as to whether or not I was going to spend $6.5 billion of federal

tax dollars to either provide for homeland security, specifically prevention of bioterrorism, and do this, I know what I would provide,

and I think I know—let me ask you the question. What would you

suggest? What is the greater priority at this particular time? Because there is legislation to do that, by the way.

Mr. NORQUIST. Uh-huh.

Mr. PASCRELL. So I am not dreaming it up. Which is the more

stimulant to the economy, and which is more necessary, in your

mind?

Mr. NORQUIST. Well, the effort for homeland security is being

taken care of through the Defense Department budget and the CPA

budget, and there is a regular appropriations process for all of

those things. This is a separate issue of how best to stimulate the

economy. I think we should do both of those things, and I hope the

folks over at the Senate will actually do the homeland security

stuff in the regular appropriations budget, rather than what they

have been doing with putting in all sorts of pork barrel spending

programs and the chicken poop stuff over there, rather than doing

it in homeland security. You are quite correct to criticize the Senate for not getting the homeland security stuff done.

Mr. PASCRELL. Well, the $6.5 billion is going to have—we have

to find it somewhere—— Mr. NORQUIST. Correct.

Mr. PASCRELL [continuing]. Which is my point.

Mr. NORQUIST. Uh-huh.

Mr. PASCRELL. You said that every tax cut is a good tax cut, even

bad tax cuts are good. And I wonder if you would agree with me— and let us talk about a specific example. In the recent stimulus— stimulant package, the—dealing with the corporate taxes, dealing

with the corporate income tax and its relationship to each of the

states of the union—federal corporate income taxes—the states

would lose $5 billion if that part of the stimulant package went

into—was implemented.

Now, to me, particularly with so many states facing budget deficits right now because of a lot of reasons——

Mr. NORQUIST. Uh-huh.

Mr. PASCRELL [continuing]. That would be an example to me of

a bad tax cut. Would it be an example of a bad tax cut to you, even

though, in your mind, it would be good?

Mr. NORQUIST. Uh-huh. The challenge is that since 1994 federal

government spending has gone from 22 percent of Gross Domestic

Product, GDP, to 18 percent. So there has been a reduction in the

cost of the federal government as a percentage of the economy.

Sadly, at the state level, they have not had the competence and the

hard work that you have put into maintaining some budget discipline and spending has increased—— Mr. PASCRELL. But you know—— Mr. NORQUIST [continuing]. At the state level as a percentage of

GDP. And so we unfortunately have not seen the fiscal discipline

from governors and state legislatures that Congress has shown. So

I do think we need to look at the governors and ask why they

29

haven’t become more productive and had greater productivity as

the federal government has.

Mr. PASCRELL. Well, I think—— Chairman MANZULLO. I would like to move onto—— Mr. PASCRELL. Well—— Chairman MANZULLO. We have ten other people and your five

minutes just expired.

Mr. PASCRELL. We will let other people to go on, Mr. Chairman.

You are the boss.

Chairman MANZULLO. Mr. DeMint.

Mr. DEMINT. Thank you, Mr. Chairman. This idea has pulled me

both ways. I would really like to see us looking at permanent tax

policy rather than something that is just a quick fix like we are

talking about here. At the same time, after years of consumer marketing, I understand consumer behavior is not necessarily rational

and logical. And the downturn in retail sales has very little to do

with a lack of money in consumer’s pocket, but more of an attitude.

And this idea may be just what the doctor ordered as far as changing the attitude, giving people one more reason to shop, particularly going into our biggest retail season of the year.

So I think it is something we really need to look at. And I agree

with Mr. Norquist, if we did something here, those state representatives would be in their capitals very quickly changing their laws

to get free federal money. So—and this is also something, from our

perspective politically, that I think consumers, voters, are likely to

understand. Whatever we do on the other—the rest of the economic

stimulus, whether it be on the tax cut side or the spending side,

very few people are going to see or feel or understand that directly.

And this is something people can understand.

So I am very interested in it. The question has come up is that— it has been mentioned today that, well this might give a little jolt

for a short period, but actually it creates a cliff on the other side

where you get sales for a couple of weeks and then it is going to

drop off more than it normally does, and it will wait for the, I

guess, the next stimulus to get people to shop again.

I don’t necessarily think that is true, but I would like some of

you retailers—and, Mr. Wilson, maybe we would start with you. Do

you think, if we had this holiday, that as soon as it was over, that

you would have a drop-off in sales that continued into a difficult

month of January and maybe beyond? What is your perspective of

what would happen after it was over?

Mr. WILSON. Well, our perspective is—or our outlook on this holiday season is not as good as it has been in the past. This type of

incentive for—to get consumers out and spend money, it will create

more of a positive atmosphere in the economy. Right now, I think

people are somewhat depressed. I think they are scared. I think

they are going to hold onto their money. They are not going to

spend as much. And with this tax holiday, it will help people come

out and spend money.

Mr. DEMINT. Uh-huh.

Mr. WILSON. I am not so worried about a drop-off in sales. I

think this attitude, positive attitude, will move forward through

Christmas and then into January.

Mr. DEMINT. Yeah.

30

Mr. WILSON. What I am scared of is the attitude now of holding

back spending because that is what we are faced with right now

if we don’t do something about it.

Mr. DEMINT. Yeah. I tend to—any other comments? Good. I tend

to agree. I yield back, Mr. Chairman.

Chairman MANZULLO. Congresswoman Tubbs Jones.

Ms. TUBBS JONES. Thank you, Mr. Chairman. And thank you for

hosting this hearing this afternoon or this morning. I was confused

on the time. But let me thank each of you for coming to testify

today. I have a couple just kind of general questions. I think I am

going to look to Mr. Norquist first. Mr. Norquist, is it your opinion—or what is your opinion in terms of consumer spending when

an economic stimulus package that is being presented to the Congress currently, or is before the Congress currently, puts no dollars

in the hands of workers to spend dollars?

Mr. NORQUIST. Well, if you are not taking sales tax dollars from

them, then you are leaving in their hands money that they earned.

I mean, I—— Ms. TUBBS JONES. No. I am—let me ask the question again. Currently, the economic stimulus package before the U.S. Congress

provides dollars to companies and puts no dollars in the hands of

the workers. How is that an economic stimulus that would then

help the sales tax holiday work? How would that work?

Mr. NORQUIST. The importance of reducing marginal tax rates is

it changes the incentives that people face and the decisions that

they make. What we are talking about is letting people keep the

money that they earned and reducing the disincentives to save and

invest and consume.

Ms. TUBBS JONES. But the current economic stimulus package

doesn’t give any money to workers or allow them to keep money

that they earned. Is that a fair statement or have you analyzed it?

Maybe that should be the question I ask you.

Mr. NORQUIST. No. If you are looking at—are you talking about

the bill that the House passed?

Ms. TUBBS JONES. Yes.

Mr. NORQUIST. Okay. The bill that the House passed reduces a

number of taxes across the board, both on individuals and on companies. Of course, half the people in the country own shares of

stock. So when you cut taxes on businesses, you are cutting taxes

on the assets of half the people in the country.

Ms. TUBBS JONES. But it would be true, most of the people who

own stocks aren’t going—are not going to spend any more money

based on a sales tax than they would normally spend anyway, because it is not an issue of balancing dollars like it would be for a

low-income person who has to determine whether I am going to

spend dollars on food and clothing or something for my children.

Is that a fair statement?

Mr. NORQUIST. Well, the stimulus package, as passed by the

House, as I understand it, does include sending some checks out to

people who pay Social Security taxes, but not income taxes, under

Thomas’s bill.

Ms. TUBBS JONES. Under Mr. Thomas’s bill. But the question— my question back to you is that an economic stimulus package that

puts no dollars in the hand—most—let me start over. Most conVerDate 11-MAY-2000 07:47 Mar 05, 2002 Jkt 077330 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\A330.XXX pfrm04 PsN: A330
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sumers or the bulk of those consumers are everyday working people who really don’t have savings accounts or investments accounts.

Fair statement. Right?

Mr. NORQUIST. No. Actually more than half the people in the

country own shares of stock directly. The whole idea—— Ms. TUBBS JONES. So the other half—— Mr. NORQUIST. The whole—well, we are going to get to that.

Ms. TUBBS JONES. So let me put it a different way. Most low-income people are more consumer-oriented than they are investmentoriented. Is that a fair statement?

Mr. NORQUIST. Correct. And that is why this—— Ms. TUBBS JONES. And so most of the current consumption that

goes on at these times of year really is focused more on the people

who do more of the purchasing; more consumers than people at the

upper half who always spend the—than they are going to spend for

Christmas or whatever. Are they—— Mr. NORQUIST. I would argue—well, to the extent that low-income people face prices—higher prices because of sales taxes, if you

exempt those sales taxes, state sales taxes, for 10 days, you would

be particularly helpful to lower-income Americans. The proposal before you today would be more helpful to lower-income

Americans—— Ms. TUBBS JONES. And we will put more money in their pocket

because those at the low end of the income are really going to benefit from the tax benefits that are in the economic stimulus bill.

Mr. NORQUIST. Okay. Well, I would argue that the tax benefits

in this bill of reducing the sales taxes are very important to them.

There is a difference—— Ms. TUBBS JONES. I am just trying to combine—and I understand

what you’re arguing about this particular bill.

Mr. NORQUIST. Yes.

Ms. TUBBS JONES. But what I am suggesting to you is we are

talking about an economic stimulus. Currently, the economic stimulus that is before the House does not facilitate lower-income people being able to benefit from this particular package—— Mr. ISSA. Would the—— Ms. TUBBS JONES [continuing]. Because it doesn’t stimulate income.

Mr. ISSA. Would the gentlelady yield?

Ms. TUBBS JONES. No. I will not.

Mr. ISSA. Okay. Thank you.

Mr. NORQUIST. Actually, Thomas’s bill does send out some rebate

checks to people who pay Social Security taxes, but not income

taxes. So that is aimed at lower-income people. If you are asking,

do I believe that taking tax dollars from one individual and giving

them to another individual and letting that other individual spend

the money to stimulate this economy, no. I don’t.

Ms. TUBBS JONES. Thank you. I yield the balance of my time to

my colleague.

Chairman MANZULLO. Thank you. I have got six seconds here.

Ms. TUBBS JONES. That is all I have left. Well, I don’t—I didn’t

realize I had used up so much time. I thank each and every one

of you for coming. I am sorry I didn’t have a chance to engage in

a conversation with each of you. But if you get a chance or some

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free time, I would like to know what all of you think would stimulate the economy other than sales tax legislation? Thank you.

Chairman MANZULLO. Okay. Mr. Pence.

Mr. PENCE. Thank you, Mr. Chairman. I very much appreciate

the Chairman holding this hearing and for my colleague’s very

stimulating comments about the stimulus package. We must have

read a different bill than she read. There was a great deal in my

way of thinking, maybe too much emphasis on rebates and give-aways, when, in fact, what the economy truly needs, in this member’s judgment, is those things that will stimulate capital formation

and not just be targeted at consumers.

And with that being said, I would like to address my comments,

not to pick on Mr. Norquist, but he is just such a big and easy target. I am—well, not that big.

Mr. NORQUIST. I am not that big. Wait a minute.

Mr. PENCE. I will not yield.

Mr. NORQUIST. I have dropped some pounds in the last few years.

Mr. PENCE. Oh. Okay. The—my colleague who just spoke said

that people who own stocks don’t worry about sales tax. I would

love to get you to amplify a little bit on what I thought I heard you

suggest that with more than half of the American public owning

stocks in some way, shape, manner, or form—— Mr. NORQUIST. Right.

Mr. PENCE [continuing]. That the Balkanization rhetoric about

the country, the rich, the poor, or this half, that half, actually—is

it not accurate to say that millions of what are commonly proudly

referred to as blue collar working Americans today, own stocks

through pension funds and 401K’s. And I would just like you to— I would like you to reflect on who you think would benefit with particular emphasis on people that may own capital assets.

Mr. NORQUIST. Okay. There used to be a sense in this country,

and it used to be perhaps somewhat true, that only a few people

own shares of stock directly. Back when Reagan was elected in

1980, only 20 percent of Americans owned shares of stock directly.

Now, many others benefited from share ownership in insurance

companies or in their pensions, defined benefit pension plans for

state and local workers, for people in other companies, but only 20

percent owned shares directly. Now, it is over 50 percent who own

shares directly—401Ks, IRAs, and it’s growing every year.

In addition to that, there are 15 million state and local workers

for whom real—have been put aside by state and local taxpayers.

And there really aren’t fair values behind the commitments to get

them defined benefit plans. And a lot of states, Florida just being

one of them, are allowing people to move from the defined benefit

plan to defined contribution. So we are going to get to, very shortly,

60, 70 and more percent of the Americans owning shares of stock

directly.

So the ideal in the—or rhetoric sometimes that we have had, the

envy of the political agenda and the political principle that has

been used in this country in the past no longer reflects the reality

of the United States and hasn’t for some time.

Mr. PENCE. So to paraphrase, millions of blue collar Americans,

many union, many millions of union officials, including state and

local public employees who enjoy participation in public employee

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unions, own stock and presumably would be in what we like to

refer to as working Americans. Would these people benefit or, you

think, be encouraged to participate more aggressively during the

holiday season with this tax rebate?

Mr. NORQUIST. Well, I think tax reductions—— Mr. PENCE. Tax holiday. Excuse me.

Mr. NORQUIST [continuing]. On all factors of production will

make people better off, both as consumers, as investors, as owners

of shared accounts—owners of real property, homes. Over 60 percent of Americans own their own homes. One—the problem of envy

of class division, you know, belongs in East Germany a long time

ago. It does not belong in the United States and does not reflect

the realities of the American economy anymore. And that is why

I think we have seen a much more pleasant discussion about this

tax cut and others and why the tax cut that you passed in the

spring was bipartisan and having bipartisan support, because of

the recognition of that.

I think that this effort to make it easier for people to consume

without having discriminatory sales taxes is a great step in the

right direction, but, you know, borrowing from the capital gains tax

would help every single American.

Mr. PENCE. I thank you. I yield back the balance of my time with

a great appreciation for this entire Panel. I look forward to enthusiastically supporting this proposal, believing, as many of you have

said already, that it is a tested principle and it is one that, as my

colleague, Mr. DeMint, said, would be well understood and appreciated by Americans. And if my wife is to be any judge, any break

at the cash register will bring her more hastily into the stores. And

I think it would have great simulative effect at a needful time in

this country.

Chairman MANZULLO. Thank you very much.

Mr. PENCE. I yield back.

Chairman MANZULLO. Mr. Davis.

Mr. DAVIS. Thank you, Mr. Chairman. And let me commend you

for putting together this very thoughtful Panel and holding this

hearing. And especially I want to thank Representative Thune for

inviting Mr. Karl because I just found his testimony to be fascinating. And I am a great fan of ESOPs. And I think that is one

of the best approaches to helping all people in this country have

a part of the ownership that I have ever seen. And so I just commend you for that.

I don’t view this proposal as being any panacea for our economy.

I view it as a short-term stimulus. It is kind of surprising to me

because very seldom do I find myself favoring tax breaks. I happen

to come from the school of Justice Holmes, who suggested that taxation is the price that we pay for a civilized society. I also come

from a school where Frederick Douglas made a comment once that

one of the things that we recognize in the world in which we live

is that we may not get everything that we pay for, but we most

certainly must pay for everything that we get.

And so I am always amazed when I see people or hear people

suggesting that somehow our government can function in all of the

things that we expect government to do, that we can do it without

putting into the till the resources that are necessary. That is to

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say, I don’t believe that you can get rain without thunder and the

lightning. I don’t believe that you get the Army and the Navy and

the CIA and all of the other programs and services that we expect

to have, without paying for them.

I do believe that if we wanted to seriously stimulate the economy, that we start by raising the minimum wage. That we would

really start by putting some additional money in the pockets of people who need it the most who are going to go out and spend it. And

they are not going to spend it willy-nilly because they are going to

spend it because they need to spend it in order to live.

I think if we rose to the point of a livable wage for people, then

we would talk about lifting the economy. I come from a vantage

point to suggest that a rise in tide will lift all boats. And that is

to say that if you start at the bottom, and lift people up, everybody

else is going to go along as well.

I ended up arriving at the point of supporting this measure because I felt that we didn’t have any other answers that were going

to come as rapidly as this might come. I don’t believe that we are

getting ready to raise the minimum wage before Christmas. I

would love for us to do it, but I just don’t believe that we have the

wheel to do it at this moment.

I keep hearing about tax breaks that are trickled down that have

nothing at all to do with helping the people, a majority of whom

I represent in my Congressional district. I have the most fascinating district in all of America, some of the wealthiest people,

but I also got a lot of the poorest people. And many of the proposals

I know, and they know, are not going to help those at the bottom.

And so my only question really is, in terms of the possibility— and you raised—and I agree with you—I mean, all of the practical

points of implementation. If the implementation could occur, my

question is, do you believe that for a short term, this proposal

could, in fact, be helpful and help move the economy along while

we try to figure out what we really need to do, like change our

trade policies, like change some of the corporate give-a-ways, and

some of—and find a way to keep some manufacturing in the country, because it is tough to live in a high-tech service economy. It

is tough, especially for the people at the bottom who oftentimes

don’t qualify for either.

Ms. LAV. Well, I would say that unfortunately there is a lot of

ifs. And when you have a long chain of ifs, you know, if you can

do it quickly and, you know, if you can solve the administrative

problems, and if states get reimbursed adequately, and—because I

am more worried about states raising their sales tax right now.

Half the states raised their sales tax in the last recession. I don’t

think we really want to see that happen again. And so I think I— and so, you know, if you could get through all that chain of ifs,

maybe this would be a good idea.

But, you know, I think it would be better to do things to prevent

states from having to raise their sales taxes now. I think it would

be better to actually put—directly—have the Federal Government

directly put money in people’s pockets, rather than try and go

through this kind of Rube Goldberg of having one level of government reimbursing another level of government. And, you know, I

think that you can’t just put this in place. There would be a mess.

35

You know, it is like all other things—you have to write the regulations and you have to get it right.

Chairman MANZULLO. I appreciate the answer. The gentleman’s

time has expired. Thank you. Thank you. Mr. Thune.

Mr. THUNE. Thank you, Mr. Chairman.

Chairman MANZULLO. Rube Goldberg. I haven’t heard that in a

long time.

Mr. ISSA. I went to high school with him.

Mr. THUNE. Thank you, Mr. Chairman. I have a statement I

would like to have included in the record, a written statement.

And, again, appreciate the opportunity to have a hearing on this

subject today. I think it is an important one. I do appreciate having

Elmer Karl from my home state here. Elmer Karl is a legendary

figure in South Dakota for a lot of reasons. Not only a successful

small business entrepreneur, but someone who probably has a

higher name identification and is more recognized across our state

than any politician. When he advertises on television, it travels—

it is projected all across the state and it has obviously been very

effective.

I appreciated your testimony, the testimony of the entire Panel.

I apologize for not being able to be here for all of it. We are having

a hearing today over in the Ag Committee on bioterrorism and so

I have tried to jump back and forth between those hearings. But

I did want to talk a little bit on the record on this subject, because

figuring out what we do to get the economy jump-started and doing

it as quickly as possible is incredibly important to the future of our

country right now in light of everything that is going on.

Just a couple of observations about this legislation. I am co-sponsoring the legislation for a number of reasons. One is, I think there

is empirical data that show that it works. And that, to me, is significant. I think it is immediate. It is consequential. And it directly

benefits all consumers. People who, day in and day out, shop for

their daily needs would realize a benefit from this.

And I guess one question I would have, because I have a letter

from the Governor of my state, who has expressed concerns about

implementation, some of the administrative costs and so forth, associated with this. A question I would ask is, if we were not able

to do this, this year, coming up with the holiday season, which is

what everybody had sort of hoped we would be able to do, is there

still value in doing it, say, early next year, in February or around

President’s Day? And by that time, a lot of our legislatures will be

back in session. And one of the concerns that was raised by my

governor is you would have to call a special session and there

would be costs associated with that. From a retailer’s standpoint,

a small business standpoint, does it still make sense to do this even

if we aren’t able to do it before this year is out?

Mr. WILSON. Yes. And definitely. I think we should do it whether

it is this holiday season or in February, January, March. I think

Congress needs to do this.

Ms. HOLLAND. I agree. I just think that we get the most bang

for our buck prior to the holiday shopping events because that is

pretty much when 40 percent of the stores have their sales.

Mr. THUNE. Okay.

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Mr. NORQUIST. I would suggest you do it both times—now, and

in the—and if your governor spent less time trying to tax the Internet, he would have more time working on this project.

Mr. GORNIK. And also to the degree that certain businesses are

sort of rinky right now, help now is better than help in the future.

Mr. KARL. Yeah. I agree that if we can’t do it now, in February

would be a great time also. It is a slow month and it would be an

excellent stimulus. And I certainly hope that our governor continues to attack the Internet.

Mr. THUNE. We figured we would have a spirited debate on that

subject. That is a hearing for another day, Mr. Chairman. Are

there problems—associated with—as long as, again, the states are

made whole as a result of this, in terms of any revenue impact?

And, of course, in our state, we have not only state sales taxes, but

our municipalities, local governments benefit from that as well.

Does that concern any of the Panel in terms of the positives that

are generated, and as you weigh that in the balance?

Again, the concerns were expressed by the Governor of South Dakota had to do not only with having to call a special session, but

that this is you sort of the Federal Government telling us how to

do our work, our business, conduct our state affairs, basically taking revenue away from us, even though it would be made up. But

has anybody, in your experience, as you discuss this issue, had any

kind of blow-back or resistance as a result of some of the implementation issues that might arise?

Mr. KARL. I don’t know that Governor Janklow understands that

whole situation. If we are going to get—I think his concern was the

fact that the cash flow and not getting the money back from the

Federal Government immediately. And if we can address that so

that we don’t get hurt as far as paying our state employees and

taking care of our government, I can’t see where the downside is

to this. Because certainly we need increased sales. And this certainly will do that.

Mr. THUNE. Yes.

Ms. LAV. Well, it is—you know, your assumption is easier said

that done, that states be made whole, because it is going to be a

question of what whole is. If—because if you use historical data

then there is the question of what about the sales that were accelerated in. And, you know, if you ask states to do a detailed accounting, that is tremendously burdensome. And if you ask them

to wait, they are going to have to borrow money and pay interest.

So I mean, it is not as simple. And I think that is why a number

of governors have expressed some concern about this.

Chairman MANZULLO. Okay.

Mr. THUNE. I see my time has expired, Mr. Chairman. So I yield

back. Thank you. Thank the Panel.

Chairman MANZULLO. Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. Since Mr. Davis is still

here, if I can just reiterate my support that we will work on a minimum wage reform package that really does see the light of day.

And I stand very ready to work on that. I think the absence of a

living wage is partially because we haven’t been willing to make

real reforms in how we calculate it, how we do it, to the benefit

37

of the worker. And I hope we can work together on that sooner and

not later.

You know, the one thing that perplexes me is why republicans

are for this and democrats often are against this. And, you know,

I have entered only recently this partisan divide. But let me just

ask a question and maybe you can answer why I don’t understand

this.

If I understand correctly, if you make $10,000 a year and you are

absolutely—I mean, you get it all from government aid, and you

are really at the bottom of the economic ladder, like some of our

members have said their constituents are, you spend everything

that you get. And, therefore, if you are spending 100 percent of

what you get, if we lower your taxes because you pay taxes on this,

and it is one of the most regressive taxes because it is six percent

in a given state, even if you only make $10,000, you are going to

get a benefit that is six percent of everything you made.

And then if you are middle class and you spend much, but not

all, you are going to get a percentage—let us say half to threequarters, because you are only going to spend that much. But you

are probably the group that does have the discretion to maybe shift

a little more spending. So you are going to tend to spend a little

more, thus, creating more revenue.

And if you are in the multi-millionaire club, you probably buy

what you want when you want it and, therefore, this isn’t going to

move you very much. So if I see this correctly, this is a tax relief

or a reverse flat tax that benefits, in percentage terms, the mostdeserving, or the least-earning, or the most needy of our society,

creates among the middle class, blue and white collar alike, a shift

that will probably result in greater revenue in other areas, income

taxes, both for workers and for companies in their taxes—and probably does the least for the top level.

Why is it that this isn’t a reverse equivalent of what my colleagues on the other side of the aisle are always asking for?

Ms. LAV. Well, you are correct, sir, in that sales taxes are very

regressive and they take a larger share of income from lower-income people than higher-income people for——

Mr. ISSA. So if we undo regressive tax—— Ms. LAV [continuing]. The reasons you—well—— Mr. ISSA [continuing]. This is the best thing. Is that correct?

Ms. LAV. In part, it is. But, in part, this particular one, the base

that you are buying out—certainly high-income people are going to

get the most dollar amount. So if you look at the share of dollars,

high-income people are going to get more dollar amounts because

who is going to be able to afford to buy the new DVD. You know,

in the increment that is not——

Mr. ISSA. Wait. Wait. This is the $169 or even $99 DVD.

Ms. LAV. Well, the——

Mr. ISSA. Is the millionaire—I just——

Ms. LAV. But—— Mr. ISSA [continuing]. Want to understand. The millionaires— and understand, I am for this; you are against this. So this is how

the system, I believe, works here. I get to ask the questions a lot.

What—— Ms. LAV. Well——

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Mr. ISSA [continuing]. Is it about a $99 DVD—and you can buy

them today at Best Buy and Circuit City—that you have to be a

millionaire to buy?

Ms. LAV. No. I am just saying that for a low-income person who

can’t, I was going to say, afford $100, they probably also can’t afford $95. That is, you know, to respond to a sales tax holiday. That

was the only point I was going to make. So, you know, it is certainly not—you know, I am not arguing particularly it is not necessarily that the increment helps low-income consumers the most

the additional—— Mr. ISSA. But that wasn’t my question.

Ms. LAV. But the—it is—— Mr. ISSA. That wasn’t my question.

Ms. LAV [continuing]. The—you know, there are other

problems—— Mr. ISSA. Ma’am, ma’am, please. It wasn’t my question. And

maybe Grover can answer the question. If the lowest-earning people in our society, those at $7,000, $8,000, the very bottom, spend

100 percent, don’t they get 100 percent relief by this?

Mr. NORQUIST. Yes. And this is a tax cut that is skewed in its

distribution towards the lower-income Americans. It has more benefit to them as a percentage of their income than it would for Bill

Gates or whatever. You are quite correct that you are smoking out

an answer from people. When some tax cuts have been put forward, some of the politicians said, oh, we are against this tax cut— it is too weighted to the rich. They say, okay. You have just offered

them a tax cut that is weighted to poor people. They don’t like it

either. Okay.

Some politicians don’t like tax cuts because they don’t like the

American people keeping their own money. They don’t like rich

people keeping their own money. They don’t like middle-class people keeping their own money. They don’t like poor people keeping

their own money. They want to take the money and they like to

spend it.

Mr. ISSA. Anyone else see slightly different or some other comment? Kathy? Come on. I have known you for ten years. You have

had an opinion on everything.

Ms. GORNIK. I agree with the comments just spoken.

Mr. ISSA. Thank you, Mr. Chairman.

Chairman MANZULLO. Well, thank you. You know, I have got a

solution to this thing. Let me tell you how simple this thing is. If

the government is going to spend $6.5 billion each year—or on this

program, here is the bill. If a state passes a bill that has a sales

tax holiday for ten days based upon the state’s own rules and regulations, then you take the proportionate number of people in each

state and the Treasury of the United States sends them a check.

The State of Illinois gets a check for $260 million, period. That is

it.

All the state has to do is certify—is put into effect a sales tax

holiday. And whatever the state is, based upon their own laws and

regulations—they may tax hotel stays, they may tax food at one

percent. You don’t have to change your computer and you don’t

have to do anything. The Federal Government does not mandate

what you can charge sales tax on or not.

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You know, Illinois has—will have 19 representatives. Divide that

by 4 into 35. That is about four percent. Four percent of $6.5 billion—Congressmen can’t divide, but we can multiply. It comes out

to about $260 million. And I think we need to do something. That

would—that answers every single question that you have, Ms.

Lav——

Ms. LAV. Not quite.

Chairman MANZULLO [continuing]. Because what it does is that

it creates very little paperwork and the money goes back. And the

states that want to participate in it can; those may and those that

don’t want to, don’t have to do it.

Ms. LAV. I mean, the——

Mr. ISSA. Mr. Chairman, I might echo that not only is that a

positive proposal, but it would tend to reward equal states based

on population, thus having our poorer states get maybe more than

they earn, but, or course, not more than they need. If a state happened to have——

Chairman MANZULLO. However it is.

Mr. ISSA [continuing]. A poorer population, which is probably

very good.

Chairman MANZULLO. Ms. Lav.

Ms. LAV. I was just going to say, some states would come out

ahead and some behind on that, because a state, for example, like

Hawaii or South Dakota that has a very broad-based, you know,

sales tax, would probably not—you know, per person——

Chairman MANZULLO. I didn’t say this was perfect, you know,

but——

Ms. LAV. Yeah. No.

Chairman MANZULLO [continuing]. I am trying to——

Ms. LAV. You said it did every objection—so some states would

come out behind.

Chairman MANZULLO. I appreciate that. Did you have any closing comments, Ms. Velazquez?

Ms. VELAZQUEZ. No. I just would like to ask unanimous consent

to include this study that was conducted by the University of Florida regarding the price effects around a sales tax holiday into the

record.

Chairman MANZULLO. I appreciate that very much. Mr. Thune.

Mr. THUNE. Mr. Chairman, could I just make a suggestion to

your proposal that we do it like——

Chairman MANZULLO. Just a second. Obviously that will be included in the record without objection.

Chairman MANZULLO. As would anybody—any other statements—if there are any other groups or individuals that want to

have their study, as long as it is not real thick, made a part of the

record, you are welcome to do so. And you have ten days within

which to get that either to Ms. Velazquez or to me. Mr. Thune.

Mr. THUNE. I was just going to simply suggest, Mr. Chairman,

that your proposal on population, since South Dakota only has one

member in the House, and we get 1/435 of that $6.5 billion, that

maybe we do it like the electoral college and make it, you know,

count the Senators too. So we would distribute it a little bit more

fairly. I yield back.

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Chairman MANZULLO. All right. We—the Subcommittee Chairman on Taxation is not here today, so I have got an assignment

for him. That would be for Mr. Toomey. The problem with this legislation obviously cannot get through to be in effect on the day

after Thanksgiving. And I am going to assign him, as the Chairman of that Subcommittee, to try to work with the various groups,

especially the governor’s group, to try to come up with a plan so

that in the event that Congress decides to do it, we would be ready

to go.

And it would have to address most of the objections raised by Ms.

Lav. She raises very practical objections as to the administration

of this particular proposal. Everybody here is in agreement that

you need a stimulus. Her objections, although maybe some are

based upon theory, but 80 percent of it is based upon the practicality of implementing this in any—and the fact that there may be

additional costs to it.

So I am going to have Mr. Toomey—assign him to work with the

different groups to come up with a plan that maybe, if in the

spring Congress decides it is necessary, we can get a consensus

that will address at least most of the issues that were raised today,

especially the very delicate issue of implementation.

Again, I want to thank you all for coming. It has been an excellent hearing. And this Committee is adjourned.

[Whereupon, at 12:07 p.m., the Committee was adjourned.]

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