[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
 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










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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE. CHABOT, Ohio                  DONNA M. CHRISTENSEN, Virgin Islands
PATRICK J. TOOMEY, Pennsylvania      ROBERT A. BRADY, Pennsylvania
JIM DeMINT, South Carolina           TOM UDALL, New Mexico
JOHN R. THUNE, South Dakota          STEPHANIE TUBBS JONES, Ohio
MIKE PENCE, Indiana                  CHARLES A. GONZALEZ, Texas
MICHAEL FERGUSON, New Jersey         DAVID D. PHELPS, Illinois
DARRELL E. ISSA, California          GRACE F. NAPOLITANO, California
SAM GRAVES, Missouri                 BRIAN BAIRD, Washington
EDWARD L. SCHROCK, Virginia          MARK UDALL, Colorado
FELIX J. GRUCCI, Jr., New York       JAMES R. LANGEVIN, Rhode Island
TODD W. AKIN, Missouri               MIKE ROSS, Arkansas
SHELLEY MOORE CAPITO, West Virginia  BRAD CARSON, Oklahoma
BILL SHUSTER, Pennsylvania           ANIBAL ACEVEDO-VILA, Puerto Rico
                                     
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                














                            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














 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.
    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 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 Panelhere 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.

                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 back-to-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 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.
    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 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 
consumers 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.
    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----
    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 zero-
percent 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.
    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 
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 best-dressed 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.

                    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.
    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.

                  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----
    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.
    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 someshopping 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, development, 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 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.
    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.

                 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 
seven-year 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-income 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, audiosystems, 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.
    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.
    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 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----
    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--andthen 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 customers 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 one-day 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 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.
    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 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.
    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 consumers 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 
investment-oriented. 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 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-a-ways, 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 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 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. 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.
    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 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 
three-quarters, 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 most-deserving, 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----
    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.
    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.
    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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