VAT would have huge affect on personal spending, survey finds

Nearly two-thirds of respondents (64 percent) say a federal value added tax (VAT), of any amount would cut into personal spending habits and negatively affect the purchase of almost anything, from homes to groceries, even medicine, according to a survey for the National Retail Federation (NRF). 

A VAT as high as 15 percent would affect the purchase decisions of 92 percent of survey respondents.  

"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," said NRF president and CEO Matthew Shay in prepared remarks. "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."

VATs are essentially surcharges added to an item during production, i.e. when value is added to it. For example, timber cut to make toys for children would incur a VAT, when the toys are painted they would receive another VAT and when they are boxed and shipped to the store another VAT would be levied. 

These taxes are paid by the companies but normally become a part of the cost of goods sold that is passed on to customers and can be deemed a consumption tax. 

With consumer spending already at record lows, which is hurting recovery efforts, the survey suggests a VAT would drive more buyers from stores.   

The survey found 83 percent of consumers would cut back on eating out if a VAT were enacted; 80 percent would reduce clothing and accessories allowances; 74 percent would buy less at the grocery store; 72 percent would pare back on entertainment; and 72 percent would rethink vacation travel. 

"Additionally, half said a VAT would influence their spending on a home while two-thirds said it would impact automobile purchases," states a NRF release on the survey. "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." 

Lawmakers are supposedly looking at creating a VAT to reduce the federal deficit, but 82 percent of survey respondents believe Congress should reduce spending instead. Only 10 percent favored the creation of a VAT or other form of federal sales tax to reduce the deficit, and only 8 percent favored an income tax increase. 

The just-released survey was conducted by BIGresearch for NRF and tapped the opinions of 5,079 consumers between April 12 and 15.   

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