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Americans Say Value Added Tax Would Force Cutbacks in Spending, According to NRF Survey

WASHINGTON--(BUSINESS WIRE)--Budget-focused Americans still grappling with a sluggish economy say they don't want a substantial new Value Added Tax that some policymakers are proposing as a way to reduce the federal deficit, according to a survey conducted for the National Retail Federation by BIGresearch.

"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"

Nearly two-thirds of those surveyed - 64 percent - said a federal VAT of any amount would impact their spending on everything from cars to homes, groceries and medicines. If the government imposed a VAT of 15 percent and applied it to all purchases, 92 percent said their spending would be affected.

"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," NRF President and CEO Matthew Shay said. "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. The deficit needs to be reduced, but a VAT is not the answer."

According to the survey, areas where consumers would cut back the most if a "federal sales tax" or VAT were created would include eating out (83 percent), clothing or accessories (80 percent), food/groceries (74 percent), entertainment (72 percent) and vacation travel (72 percent). Additionally, half said a VAT would influence their spending on a home (50 percent) while two-thirds said it would impact automobile purchases (63 percent). 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.

Instead of creating a new tax, 82 percent believe Congress should reduce the federal deficit by spending less. Only 10 percent of respondents favored creation of a VAT or other form of federal sales tax to reduce the deficit, and only 8 percent favored an income tax increase.

A number of prominent members of Congress and policymakers have said in recent months that a VAT should at least be considered as a way to reduce the federal deficit, which is currently at its highest share of GDP since World War II. President Obama told his deficit reduction commission in April that nothing - including a VAT - should be considered off the table.

While there are many kinds of VATs around the world, the most common is similar to a national sales tax and is paid by the consumer at the cash register. U.S. proponents have not offered specifics, but if a VAT were offered for deficit reduction, it is expected that it would be imposed in addition to existing state sales taxes and in addition to the federal income tax.

While the NRF/BIGresearch survey is intended as an early indicator of how consumers would react to a VAT, NRF has also commissioned Ernst and Young and the economics firm Tax Policy Advisors to work together on a comprehensive study of the impact a VAT would have on consumer spending, employment and gross domestic product. NRF plans to present the results of that study to the deficit reduction commission and ask that they be taken into consideration before the panel makes its recommendations to Congress in December.

NRF today also unveiled a new VAT web page intended as a resource for retailers, lawmakers, reporters and others. The page includes links to legislative action, news coverage and other resources, and will be expanded as needed.

About the Survey

The survey, which evaluated Americans' reaction to a Value Added Tax, was conducted for NRF by BIGresearch April 12-15. The poll of 5,079 consumers has a margin of error of plus or minus 1 percent.

BIGresearch® consumer intelligence provides analysis of behavior in areas of products and services, retail, financial services, automotive and media. The BIGresearch Consumer Intentions and Actions® Survey of 8,000+ respondents is conducted monthly and the Simultaneous Media Usage® Survey of 15,000+ respondents is conducted semi-annually.

As the world's largest retail trade association and the voice of retail worldwide, NRF's global membership includes retailers of all sizes, formats and channels of distribution as well as chain restaurants and industry partners from the United States and more than 45 countries abroad. In the United States, NRF represents the breadth and diversity of an industry with more than 1.6 million American companies that employ nearly 25 million workers and generated 2009 sales of $2.3 trillion. www.nrf.com

View sample charts and complete survey results

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