Retailing sluggish

By Frank W. Denny President/CEO Builders Square

Y THE TIME the Dec. issue of Building Products Digest appears, this country will have elected a new President.

It is almost certain that a tax increase, effective in 1990, will occur as our country continues to spend at even higher rates. This increased spending trend is evidenced by the 1988 deficit being higher than the 1987 deficit, ver-sg! an $80 billion reduction in 1987 from 1986 levels.

The country cannot continue to incur $150 billion annual deficits and. in fact, our interest Payments on this massive debt account for much of the current deficit. After eight years of Reaganomics, it is apparent to me that this economy, with its present governing body, cannot grow out of these deficits.

Story at a Glance

Tax increase almost certain changes needed to stimulate growth sluggish retail environment limit on corporate mergers probable.

Two changes need to occur to stimulate a higher rate of growth and a decline in the national debt:

(l) Real legislation attacking the spending policies which may have short term negative results on retailing, particularly important is the "line-item" veto.

(2) Revision of the capital gains tax which, when lowered, creates jobs and fosters capital formation.

It is extremely interesting that Secretary Baker is exploring a sliding scale capital gains tax based on how long investments are held. I believe this theory truly holds promise and would be an effective use of taxation as a method to set policy in the business community.

As for retail environment in 1989, sluggish would be my description. Recently there have been several studies which I feel correctly represent that the public has a significantly greater amount of discretionary income than they had in 1980. However, 1989 could well see the negative impacts of:

(l) Rising interest rates and inflation;

(2) Continued consumer credit growth which must abate to increase consumer liquidity;

(3) Erosions in consumer confidence that higher tax legislation fosters.

The other area which I believe will be addressed by Congress is the current wave of corporate mergers. Recently we have seen over $60 billion in takeover activity. Congress has generally been willing to take on those issues which do not directly impact their constituency. It is here that I believe Congress will act, through taxation policy again, to limit corporate reorlanizations by setting iapitllratios and the deductibility of acquisition interest. -This will effectively preclude the pure leverage players from the takeover and sell-off activities of the past six years. In enacting this legislation, Congres.s will be "savins" iobs in America while at the same time increasing tuies"to lower the deficit.

The good news would appear to be that the Texas economy will continue to diversify and improve and to us who ieside in the Lone Star State that change is most welcome.