There's No Bailout in Store for Retailers

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Can we spend our way out of this recession? Retailers seem to think so and they've got a bailout plan for their industry that seeks to do just that.

The conga line of companies and industries dancing toward the U.S. Treasury's door seeking a bailout seems to grow daily. From banks to insurers to carmakers, there's hardly a business not shameless enough to say it needs a handout. We've quickly devolved from propping up firms supposedly too big to fail without wrecking havoc on the world's financial system, to saying money's tight so we want cash as well.

For example, commercial developers have $400 billion in debt coming due next year and they want Uncle Sam to pay for it. Ethanol producers are seeing their margins squeezed as oil's price drops and they want a bailout, too. That's despite having received taxpayer subsidies and still not being able to turn a profit. Now retail says it wants its fair share, too.

We're well aware that consumers have pretty much decided to stay home this year, or when they do venture out it seems they're shopping only at Wal-Mart (NYSE: WMT). So with retail in the dumps, why not get in on the action while the getting's good?

Yet the industry's plan is different from all the others seeking a bailout. To this Fool, it seems it is proposing the kind of innovative thinking that needs to be used to address this recession.

Retailers don't want your hard-earned tax dollars. J.C. Penney (NYSE: JCP) isn't looking for a slice of the pie. Abercrombie & Fitch (NYSE: ANF) isn't considering becoming a bank holding company to get at the TARP funds. Instead, the retail industry simply wants three days declared a tax holiday next year.

According to the Retail Federation of America, the industry's lobbying arm, two-thirds of the economy is fueled by consumer retail spending and the tax holidays would save shoppers $20 billion, or about $175 each. This isn't money that will go into the pockets of Kohl's (NYSE: KSS) or Gap (NYSE: GPS), but would instead be saved by consumers themselves.

Let consumers keep more of the money they earn and not be forced to send it to the sinkhole of state government, and we just might be able to spur enough spending to revive this economy.

That's not to say there aren't problems with the plan. Since sales taxes are levied at the state level, the Federation's plan would have states opt into the program. While it calls for the federal government to reimburse the states for the foregone tax revenues -- that way even Arnold Schwarzenegger won't lose out on millions at a time when California is on the verge of going bankrupt itself -- there may be resistance to giving states without a sales tax such a windfall. For example, how would you calculate what they're entitled to or at what tax rate to reimburse them?

Bailouts solve nothing. We're not going to save the economy by rewarding Detroit's decades of failure or helping developers who've overbuilt and overextended themselves. Propping up industries whose products drive up the cost of food is counterproductive to say the least and siphoning off tax dollars to banks and insurance companies is proving to be a woeful failure.

Still, I'm a heck of a lot more optimistic about this plan than just handing Bank of America (NYSE: BAC) or Wells Fargo (NYSE: WFC) billions that they may or may not use for its intended purposes – and then won't tell you what they're doing with the money anyway.

So while not perfect, the retail industry's plan is telling consumers that if they want to rescue the economy they'll have to do it themselves. All they need to do is shop till they drop.