Piling a European-style sales tax on top of the existing U.S. tax structure would immediately destroy 850,000 jobs and damage retail spending for years to come, according to an economic analysis commissioned by the National Retail Federation, a leading trade group.<\/p>\n
The report studied the potential effect of a 10.3 percent value-added tax, or VAT, a form of sales tax applied at every stage of production. The tax is ubiquitous around the world, having been adopted in more than 130 countries.<\/p>\n
NRF president Matthew Shay said the study is intended to push back against what he views as a rising tide of interest in the VAT in Washington, where policymakers are eager to reduce record budget deficits.<\/p>\n
\u201cSupporters claim a VAT is the solution to the nation\u2019s economic ills, but nothing could be further from the truth,\u201d said Shay, who represents an industry that has long opposed a value-added tax. \u201cThis report has found that a VAT would have negative economic consequences for most working Americans alive today.\u201d<\/p>\n
The study, conducted by Ernst and economic research firm Tax Policy Advisers, assumed a VAT would cover most consumer goods and services but exempt home sales, rent, groceries, medicine, health care, financial services and education to ease the impact on low-income families. Such a tax, they said, would raise close to $400 billion a year, a sum that would significantly reduce budget deficits projected to hover around $1 trillion over the next decade.<\/p>\n
However, the economic consequences would be dramatic, Shay said, with 850,000 jobs lost in the first year alone. Retailers, such as those represented by NRF, would be among the hardest-hit sectors of the economy, losing $2.5 trillion in business over the first decade.<\/p>\n
The overall economy would also suffer at first, the study found, with gross domestic product dropping slightly \u2013 by 0.2 percent \u2013 in the first year. However, the economy would benefit from a value-added tax by the 10th year, the study found, because \u201clower deficits and debt would have positive long-run effects.\u201d<\/p>\n
The report argues that reducing government spending by a comparable amount \u2013 $400 billion a year \u2013 is a preferable option for reducing deficits because it would boost economic growth by 0.1 percent in the first year and 0.7 percent in the 10th year. But cutting such a sum would be the equivalent of wiping out Medicare, and therefore politically difficult.<\/p>\n
Shay said the NRF will submit the study to the bipartisan commission President Obama has appointed to develop a deficit-reduction plan. The commission is scheduled to issue its report in December. Shay said his group grew nervous about the value-added tax after seeing public comments from commission members, including co-directors Erskine Bowles and Alan Simpson.<\/p>\n
\u201cWe take this very, very seriously,\u201d Shay said. \u201cWe think it\u2019s essential that policymakers understand the ramifications of this proposal before they go any further into conversation about approaches they might take to reduce the deficit.\u201d<\/p>\n
Bowles and Simpson have declined to rule out a VAT, saying all options are on the table in the commission\u2019s discusions. Bowles also said on Fox News in April that one could make \u201cgood arguments for a value-added tax.\u201d But Bowles suggested that a VAT should be considered as an alternative to taxing wages, not as an add-on to the current system. And Simpson has said flatly, \u201cYou can\u2019t do a value-added tax without dealing with the income tax.\u201d<\/p>\n
Commission executive director Bruce Reed laughed when asked about the prospect of the commission\u2019s 18 members \u2013 including six GOP lawmakers \u2013 recommending a VAT. Under the commission\u2019s charter, 14 members must agree for any policy to be adopted.<\/p>\n
\u201cThe U.S. Senate got only 13 out of 100 members to support that policy,\u201d Reed said, referring to an April sense-of-the-Senate vote. \u201cIt seems unlikely that we could get 14 out of 18.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Piling a European-style sales tax on top of the existing U.S. tax structure would immediately destroy 850,000 jobs and damage retail spending for years to come, according to an economic analysis commissioned by the National Retail Federation, a leading trade … Continue reading