NCPA - National Center for Policy Analysis

Take VAT!

October 22, 2010

A new study warns that a value-added tax (VAT) would kill 850,000 jobs in a year and cut retail spending by $2.5 trillion over 10 years.  Sounds too bad for Washington to pass up, says Investor's Business Daily (IBD).

  • An analysis for the National Retail Federation by Ernst & Young finds that adding a VAT to the U.S. tax system would reduce gross domestic product (GDP) for years, causing the loss of "850,000 jobs in the first year," plus "700,000 fewer jobs 10 years later."
  • A VAT imposed in such a way would also cause retail spending to drop by almost $260 billion -- or 5 percent -- in the first year alone, according to the study.
  • As a result, "most Americans over 21 years of age when the VAT is enacted would be worse off," and there would be "significant redistributional effects across generations, reducing real incomes and employment for current workers."

The study comes at a time when President Obama's National Commission on Fiscal Responsibility and Reform may recommend a VAT when it announces its own ideas in December.

And if it does, unsuspecting Republicans may be thrown for a loop because some economists on the right see the level of federal spending as virtually impossible to reduce, says IBD.

Spend less or suffer a value-added tax.  Voters seeing it that way might just bring an antispending revolution to Washington next month.

Source: "Take VAT!" Investor's Business Daily, October 15, 2010.

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