“These numbers are clear evidence of what common sense would tell even the most casual observer: if you tax spending at a time when the economy is still struggling to recover, consumers are going to spend less,” NRF President and CEO Matthew Shay said. “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. 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). Additionally, half said a VAT would influence their spending on a home (50 percent) while two-thirds said it would impact automobile purchases (63 percent). Big-ticket items wouldn’t be the only casualties as 59 percent of consumers 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 of respondents 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.
A number of prominent members of Congress and policymakers have said in recent months that a VAT should at least be considered as a way to reduce the federal deficit, which is currently at its highest share of GDP since World War II. President Obama told his deficit reduction commission in April that nothing – including a VAT – should be considered off the table.
While there are many kinds of VATs around the world, the most common is similar to a national sales tax and is paid by the consumer at the cash register. U.S. proponents have not offered specifics, but if a VAT were offered for deficit reduction, it is expected that it would be imposed in addition to existing state sales taxes and in addition to the federal income tax.
While the NRF/BIGresearch survey is intended as an early indicator of how consumers would react to a VAT, NRF has also commissioned Ernst and Young and the economics 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 of that study to the deficit reduction commission and ask that they be taken into consideration before the panel makes its recommendations to Congress in December.
