How government is killing retailers and retail jobs
When government implements job-creation policies, sometimes it ignores the obvious. Take retail employment. Retailers with actual storefronts employ 1.9 million Americans, more than any other category, according to the Bureau of Labor Statistics.
Yet, retail jobs are in jeopardy. We see vacant stores throughout America. In the fourth quarter of 2011, our national retail vacancy rate was 11 percent, up from 7.7 percent in the first quarter of 2008, according to Reis Reports. It’s a retail vacancy rate we have not seen since 1991. Meanwhile, the unemployment rate for the retail trade is 9.3 percent, one point higher than the national unemployment rate of 8.3 percent.
Why has the retail industry suffered more than other sectors of the economy? Because brick-and-mortar retailers face a plethora of bad government policies.
1.) Retailers pay the highest corporate tax rate. The Obama administration’s recently announced plan to lower corporate tax rates reveals that retailers pay the highest effective tax rate of any industry listed — 31 percent. Retailers have almost no tax loopholes that can lower their effective rates. And unlike other industries, retailers do not have the option of moving overseas.
2.) Brick-and-mortar retailers operate in an unfair market. In 45 states, brick-and-mortar retailers must charge a state sales tax while their Internet competition does not. While consumers in these states are required to report and pay sales tax for out-of-state Internet purchases, few do. Even Amazon — which benefits significantly from the status quo — agrees that the current system must be changed.
In 2010, Virginia’s 8 million citizens reported and paid a grand total of $82,000 of sales tax for out-of-state sales purchases. Given Virginia’s four percent sales tax, that means citizens reported buying only $2 million — or 25 cents per citizen — of online goods from out-of-state providers. Amazon alone had well more than $2 million of Virginia sales. Although Amazon does not publicly break down U.S. sales, in 2010 the online retailer had more than $18.7 billion in North American sales. If you took Virginia’s share of the 463 million combined population of Canada, Mexico and the United States, this would translate to $323 million in Virginia sales — certainly a lowball estimate because it is improbable that Mexicans or even Canadians buy from Amazon at the same rate as Americans.
So Amazon purchases alone are underreported at least a hundred-fold, if not a thousand-fold, in Virginia and likely others states. This means Virginia retailers are losing significant revenue to out-of-state sellers. More, the Virginia government is being deprived of at least $10 million in revenue from Amazon purchases. This money not only represents an unfair burden on brick-and-mortar retailers but also reflects lost revenue that could be used to provide services to Virginia citizens. A simple congressional fix, the Main Street Fairness Act, would put online and brick-and-mortar retailers on the same footing.
The Virginia situation has in part been resolved for Amazon because Gov. Bob McDonnell announced on February 22 that Amazon would begin collecting sales tax from Virginia residents by September 1, 2013, or earlier if Congress acts to resolve the situation. But Amazon is just one Internet seller among many.
3.) Brick-and-mortar retailers face a complicated and anti-competitive regulatory environment. The Obama administration has been especially harsh on retailers. The National Labor Relations Board has imposed all sorts of new rules allowing for quick and easy unionization and requiring new workplace notices. Meanwhile, Obamacare places new burdens on all employers, but retailers are especially hard hit because many of their employees are seasonal or part time. The Dodd-Frank financial reform law, with its 800 pages of new rules, is yet another regulatory nightmare for retailers. This has left the market only to big players who can afford to comply with the new law.
Retailers are the heart of every town in America. But they are increasingly burdened by government policies that are putting them out of business.
Until and unless we change our direction and start confronting a ridiculous situation where job-creating employers pay higher taxes and face costlier regulations than their online brethren, we will see even more empty storefronts, higher unemployment and more services cut by state and local governments starving for sales tax revenue.
Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times bestselling book, “The Comeback: How Innovation Will Restore the American Dream.”