By Jay Heflin - 10/14/10 04:01 AM EDT
"Supporters claim a VAT is the solution to the nation's economic ills, but nothing could be further from the truth," said National Retail Federation president and CEO Matthew Shay, who sponsored the study, in prepared remarks.
The report, The Macroeconomic Effects of an Add-on Value Added Tax, modeled its tax after the European VAT and found that adding the levy to the existing system — which is currently being discussed in Washington — would reduce retail spending by 5 percent in the first year, or $257 billion.
The loss in consumption would taper off to 3.7 percent and become permanent, costing $2.5 trillion over the next 10 years.
Total employment during the first year of implementation would drop by 850,000, which includes all industries. Job totals would remain down by 700,000 for decades the come, the study found.
Imposing an add-on VAT would also be inherently regressive. Poorer taxpayers would be hit hardest because the tax's cost would ultimately be absorbed by end-users, making goods more expensive and harder for lower-income taxpayers to afford.
"This study shows that imposing a VAT means everyday necessities would cost more — the poor, middle-class and senior citizens would be forced to make do with less," Shay said. "Clearly a VAT would be part of the problem, not part of the solution."
The study will be released later today at www.nrf.com.