VAT Would Reduce Consumer Spending

September 7, 2010

A federal Value-Added Tax (VAT) would produce cutbacks in consumer spending across a wide variety of verticals, according to a new survey from the National Retail Federation (NRF) and BIGresearch.

2 in 3 Consumers Would Cut Spending in Response to VAT
Nearly two-thirds of those surveyed (64%) said a federal VAT, which is essentially a federal sales tax, of any amount would impact their overall spending. If the government imposed a VAT of 15% and applied it to all purchases, 92% of consumers said their spending would be affected. VAT proponents have not specified how it would affect existing federal income and local/state sales taxes.

VAT Would Most Affect Eating Out
According to the survey, areas where roughly three-quarters or more of consumers would cut back if a VAT were created include eating out (83%), clothing or accessories (80%), food/groceries (74%), entertainment (72%) and vacation travel (72%).


In addition, 70% would cut back on electronics purchases, 63% would cut back on both car/truck purchases and home repairs, and 62% would cut back on furniture purchases. Prescription and OTC medicines, which along with food/groceries are the only purchase areas falling into the “non-discretionary” category, would see reductions in spending from 58% of consumers.

Of all the specific product categories, home purchases (50%) are the least affected by a theoretical VAT.

Most Consumers Want Lower Govt. Spending
Instead of creating a new tax, 82% of consumers believe Congress should reduce the federal deficit by spending less. Ten percent of respondents favored creation of a VAT or other form of federal sales tax to reduce the deficit, while 8% favored an income tax increase.


Tax Rates Hold Steady
Tax rates, which had declined sharply during the worst period of the recession, have basically held steady since the start of this year, according to the Deloitte Consumer Spending Index. In recent months, the index shows that declining home values and stagnating wages have had the most negative impact on consumer spending in recent months.

About the Data: The survey was conducted for NRF by BIGresearch April 12-15, 2010 among 5,079 consumers.


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