VAT would destroy the economy and worsen inequality

WASHINGTON -- The creation of a European-style Value Added Tax (VAT), which some policy makers are considering as a way to reduce the deficit, would come at a steep cost, according to an in-depth economic analysis commissioned by the National Retail Federation (NRF).

The report, which studied the effect of a 10.3% VAT applied on top of the current income tax system, says such a VAT would result in the loss of 850,000 jobs in the first year, reduce gross domestic product for three years, and bring a permanent drop in retail spending totaling $2.5 trillion over the first 10 years.

"Supporters claim a VAT is the solution to the nation's economic ills, but nothing could be further from the truth," NRF president and chief executive officer Matthew Shay said. "This study shows that imposing a VAT means everyday necessities would cost more; the poor, middle class and senior citizens would be forced to make do with less; and hundreds of thousands of people who have jobs today would find themselves out of work. Clearly, a VAT would be part of the problem, not part of the solution."

The Macroeconomic Effects of an Add-on Value Added Tax, conducted by Ernst and Young LLP and Tax Policy Advisers for the NRF, is the first macroeconomic analysis of adding a VAT on top of the existing tax system

"This report has found that a VAT would have negative economic consequences for most working Americans alive today," Shay said. "If Congress wants to reduce the deficit, the solution is to cut spending, not to create a new tax."