In recent months, some Washington policymakers have suggested that a Value Added Tax be enacted to help reduce the federal deficit. Specifically, some believe that it is likely that the National Commission on Fiscal Responsibility and Reform, whose mission is to recommend policies by the end of 2010 that will improve the long-run fiscal outlook, will include a VAT in their recommendations.
What is VAT?
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. Economists agree that whether the VAT is paid directly by the consumer and remitted by the retailer, as is true with the “credit-invoice” VAT, or is paid by business through a subtraction method VAT, the economic incidence of the tax is on consumption and will cause consumer sales to decline.What will be the impact on retail?
A federal tax on consumption will dampen consumer spending. Retailers will reduce operations, closing stores and reducing employment. Some retailers will go out of business, especially smaller retailers whose margins are slimmer so they will be forced to pass the entire burden of the tax onto their customers. What is NRF doing?
NRF has commissioned Ernst and Young and Tax Policy Advisors to conduct an in-depth economic analysis of the impact of a VAT, which will be presented to the deficit reduction commission later this year.
NRF has also expressed its concern about a VAT in a number of public forums, ranging from a letter to the House Ways and Means Committee
during last year’s health care debate urging that a VAT be rejected “to pay for health care or in any other context” to a Capitol Hill jobs forum this year where we said a VAT would be "the wrong message to consumers and investors and businesses
."Learn more in the Issue Summary.