NRF: Value-added tax may crimp retail spending

Washington, D.C. The National Retail Federation said late Wednesday that talk of a national value-added tax (VAT) needs to be abandoned because the tax could curb consumer retail spending by $2.5 trillion over the next 10 years.

The NRF, in a report prepared by Ernst & Young and Tax Policy Advisers LLC, assumed a narrow-based VAT of 10.3% that could reduce the federal budget deficit by 2%.

The concept of a consumption tax, or VAT, has been mentioned by some policy experts as a possible way to whittle budget deficits that have approached 10% of GDP in recent years. The potential VAT studied in the report would be in addition to applicable state and federal tax.

According to the NRF study, most adult Americans would be "worse off" under a VAT, due to lower wages and less consumption, while retail spending subject to the tax would fall by nearly $260 billion in the first year of the tax.

"The drop in retail spending, jobs, and GDP under an add-on VAT has the potential to further weaken the economy in the near term, rather than strengthen it," said the report.