VAT Would Force Cutbacks in Spending, Says NRF Survey

September 12, 2010
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Budget-focused Americans still grappling with a sluggish economy say they don’t want a substantial new Value Added Tax that some policymakers are proposing as a way to reduce the federal budget deficit, according to a survey conducted for the National Retail Federation (NRF) by BIGresearch.

Nearly two-thirds of those surveyed—64 percent—said a federal VAT of any amount would impact their spending on everything—from cars to homes, groceries, and medicines. If the government imposed a VAT of 15 percent and applied it to all purchase, 92 percent said their spending would be affected.

“With consumer spending representing two-thirds of the economy, a consumption tax—by VAT or any other name—is not the path to recovery or a prudent way to address the federal deficit,” commented NRF president/ceo Matthew Shay. “The deficit needs to be reduced, but a VAT is not the answer.”

According to the survey, areas where consumers would cut back the most if a “federal sales tax” or VAT were created would include eating out (83 percent), clothing or accessories (80 percent), food/groceries (74 percent), entertainment (72 percent), and vacation travel (72 percent).

In addition to influencing spending on a home or automobile purchases, 59 percent of respondents said they would even cut back on prescription and over-the-counter medicine.

Instead of creating a new tax, 82 percent believe Congress should reduce the federal deficit by spending less. Only 10 percent favored creation of a VAT or other form of federal sales tax to reduce the deficit, and only 8 percent favored an income tax increase.

In addition to commissioning this study, NRF commissioned Ernst & Young and the economic firm Tax Policy Advisors to work together on a comprehensive study of the impact a VAT would have on consumer spending, employment, and gross domestic product. NRF plans to present the results to the deficit reduction commission and ask that they be taken into consideration before the panel makes it recommendations to Congress in December.

NRF also unveiled a new VAT Web page, intended as a resource for retailers, lawmakers, and others.