As we find ourselves in a crucial period of economic transition, with positive but slowing growth, we are facing some critical policy decisions with major impacts on consumers, the retail industry and the broader economy.
National Retail Federation Chief Economist Jack Kleinhenz recently highlighted that, much like in 2017, we are in a phase of waiting — waiting for inflation to stabilize and for the Federal Reserve to adjust interest rates. This period presents a delicate balance, and any missteps could have lasting repercussions.
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Our current economic landscape is marked by easing inflation and resilient consumer spending. Despite a slowdown in GDP growth from 3.4% in Q4 2023 to 1.4% in Q1 2024, the economy continues to show signs of stability. Personal incomes and savings are up, and the labor market remains robust. These indicators suggest that the Federal Reserve has room to maneuver without hastening decisions on interest rates.
However, amid this fragile recovery, there are proposals on the table that could jeopardize our economic progress. The Biden administration and congressional Democrats are contemplating significant tax increases, including a hike in the corporate tax rate. This move would be a substantial misstep, particularly as we strive to maintain economic growth and stability.
Raising the corporate tax rate would make the U.S. less competitive on the global stage. Our corporate tax rate would exceed that of our international competitors, discouraging investments in American businesses and potentially leading to job losses and decreased economic activity. A higher corporate tax rate would also harm working families by reducing wages, increasing prices and eroding retirement savings.
Historical precedents illustrate the dangers of such tax hikes. In contrast, the economic booms triggered by the Kennedy and Reagan tax cuts demonstrate the benefits of lower tax rates. These periods of reduced taxation led to significant economic growth, job creation and higher standards of living. Conversely, raising taxes during economic uncertainty risks slowing growth, reducing household income and increasing the deficit.
At NRF, we advocate for policies that support robust economic growth and a healthy retail sector. The retail industry is a cornerstone of the U.S. economy, contributing $5.3 trillion to annual GDP and supporting 55 million jobs. Policies that hinder growth, such as increasing the corporate tax rate, pose a threat to retail, consumers and the broader economy.
The Congressional Budget Office projects a decade of weak economic growth averaging just 1.8% annually, even if current tax and spending trends continue. We cannot afford to settle for subpar growth. Instead, we should adopt pro-growth policies that lower tax rates and encourage investment, driving higher productivity and economic output.
As we navigate this critical economic moment, let’s focus on sustaining the progress we've made by maintaining a competitive corporate tax rate.