A new study from the National Retail Federation predicts that the creation of a European-style Value Added Tax to reduce the federal budget deficit would result in the loss of 850,000 jobs in the first year.
The NRF also says a VAT would reduce gross domestic product for three years, and bring a permanent drop in retail spending totaling $2.5 trillion in the first 10 years.
Its no surprise that the NRF is opposed to a VAT, which is a tax arrangement that incrementally adds taxes at various stages, from production to distribution to final sale. The VAT, a kind of enhanced sales tax, ultimately gets charged to the consumer at the cash register.
However, retailers are worried about a VAT having a negative impact on consumer spending. According to the study, an add-on VAT would reduce retail spending by 5 percent in the first year, or $257 billion. The number would taper off to 3.7 percent after 10 years, but the loss would be permanent, and would amount to $2.5 trillion over the next decade. By contrast, reducing government spending would bring only a 0.7 percent initial drop in retail spending.
With an eagerly anticipated report from the federal deficit commission due on Dec. 1 outlining recommendations on ways to cut the deficit through changes in taxes, spending and entitlement programs, we can probably expect to hear more advice from various quarters in an effort to influence the commissions ultimate recommendations.