A coalition of national retailers is pushing Congress to avoid implementing a national sales tax in the form of a value-added tax system.

Last month, lawmakers held a hearing on tax reforms where they discussed the possibility of moving away from the income tax and toward a national consumption tax.

Retailers, however, say that such a move would impede economic growth. Instead, the U.S. government should focus on reforming America’s current tax system, they say.

“Members of the National Retail Federation believe that the most important aspect of any tax reform measure is its impact on the economy and jobs,” National Retail Federation Vice President and Tax Counsel Rachelle Bernstein said in a statement.

“Replacing our current tax system with a consumption tax would present an unnecessary risk to our economy. NRF believes that a reform of the income tax, by providing a broad base and low rates, would bring the greatest economic efficiency and would stimulate economic growth without causing the economic dislocations inherent in the transition to a new tax system.”

Currently over 150 nations utilize the VAT. It works like an export subsidy for foreign exporters and an import tariff at the same time, which places the U.S. in a comparatively most uncompetitive situation due to the fact that we do not utilize the VAT or any other countervailing measures.

In 2006, VAT nations collected rebates totaling $218.2 billion while the U.S. was forced to pay $122.4 billion in taxes due to the VAT. Each year the VAT imposes a $290 billion burden on exported U.S. goods and another $85 billion on services. This encourages outsourcing as American companies move offshore in order to circumvent the VAT and reap the same benefits as the companies producing in those nations.

In 2005, the tax was applied to 94 percent of U.S. imports and exports. In EU countries alone in 2001, the average VAT rate applied was 19.4 percent, coupled with an average tariff of 4.4 percent; this levies a total tax of 23.8 percent on American goods and services.

“The United States should not experiment with a brand new tax system that will put our economic future at risk,” Bernstein said. “In addition to the overall impact of consumption taxes on the economy, retailers are particularly concerned with the impact of consumption taxes on our customers. Consumption taxes are highly regressive and will raise the tax burden on lower-and middle-income Americans.”

While it is true that consumption taxes are regressive, that could be mitigated, at least partially, by exempting certain products such as food.

In addition, the VAT has the potential to put more money in the pocket of the average American if done right.

The Virginia Tax Review estimates that a VAT of 25 percent could pay for health care reform, exempt millions of American families from income taxes and still raise the revenues necessary to cut into the federal budget deficit.

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