When given a choice, most Americans would rather the government slash spending than institute a national sales tax to rein the federal budget deficit, according to a survey released by the National Retail Federation.

A whopping 82 percent of respondents said that the federal government should reduce the federal deficit by spending less. At the same time, just 10 percent of respondents said that the federal government should institute a value-added tax to achieve fiscal responsibility.

Over two-thirds of those surveyed – 64 percent – said that they would reduce their spending were the government to impose a national sales tax.

“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.”

What the study fails to mention is the fact that an economy built almost entirely on consumer spending is unsustainable. Increased savings rates among individuals and government is absolutely necessary to put the economy on more stable ground in the future.

The survey also presents the value-added tax as a zero sum game that will inevitably result in massive tax increases, when, in fact, a national sales tax could relieve the income tax burden for millions of Americans.

According to the Tax Policy Center, a 5 percent VAT that covered 80 percent of goods could generate roughly $260 billion by 2012. 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.

Michael Graetz, a Yale University law professor and author of 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States, says such a plan would lower taxes for each and every tax bracket and could allow taxpayers to exempt their first $100,000 from income taxes each year. That would essentially relieve millions of Americans of their income tax burdens.

According to some estimates, a value-added tax of just 7 percent would cover the projected $1 trillion budget shortfall in 2020. Because it would tax consumption, a VAT would penalize spending and reward saving. American goods and services would be on par with their foreign counterparts and allow U.S. businesses to compete on a level playing field, and millions of low-income Americans could see their tax rates reduced or eliminated altogether.

Conservative stalwarts such as former Federal Reserve Chairman Alan Greenspan, Charles E. McLure, a tax economist in the Reagan administration and economist and former Reform Party Vice Presidential candidate Pat Choate have all endorsed the idea in one form or another.

Print PDF