Newsletter

May 21, 2010 - Most House Republicans Ask Deficit Commission to Reject VAT

All but about two dozen House Republicans have signed a letter urging President Obama’s deficit reduction commission to reject calls for creation of a nationwide Value Added Tax, saying a VAT would reduce consumer spending and job growth, and hasn’t helped other countries avoid difficulties like the current financial crisis in Greece.

“In a depressed economy, the number one priority of government should be to stimulate job growth,” GOP lawmakers said. “With unemployment at nearly 10 percent, Americans cannot afford the burden of a new, job-killing tax. But this is exactly what a VAT will do.”

“A VAT will increase the cost of goods and services for all Americans, including the lower and middle classes,” Thursday’s letter to National Commission on Fiscal Responsibility and Reform Co-chairmen Erskine Bowles and Alan Simpson said. “And it will decrease consumption, which will deepen the recession and suppress entrepreneurialism. This is exactly what has happened in Europe, where increased government spending and taxation has led to consistently high unemployment and suppressed economic activity.”

A VAT would also harm U.S. manufacturing and send more jobs overseas, the letter said.

The letter specifically cited the current situation in Greece, saying the 19 percent VAT there failed to keep budget deficits from more than doubling since 2001.

“Not even a 19 percent VAT was able to save Greece from a full-blown debt crisis,” the letter said. “We should not expect different results in America.”

The letter, organized by Representative Joseph Pitts, R-Pa., and released by Minority Leader John Boehner, R-Ohio, was signed by 154 of the 177 Republican members of the House.

While no legislation is pending, former Federal Reserve Chairman Paul Volcker – now chairman of President Obama’s Economic Recovery Advisory Board – and others have urged that a VAT be considered to reduce the federal deficit from its highest share of gross domestic product since World War II. Obama has told the deficit commission that nothing, including a VAT, should be considered off the table as it works toward a December deadline to submit recommendations.

NRF is concerned that the higher prices that would come with a VAT would have a devastating effect on consumer spending and retail sales, and has commissioned Ernst and Young and the economics firm Tax Policy Advisors to work together on a comprehensive study that will show the impact of a VAT on consumer spending, employment and gross domestic product. The study is expected to be completed by September so it can be presented to the deficit commission in time for consideration.

© 2010 National Retail Federation