Value-Added Tax Would Hurt Economy, Kill Jobs, Business Group Study Finds

October 15, 2010 05:55

An economic analysis sponsored by the National Retail Federation (NRF) shows that a Value-Added Tax (VAT) would damage economic growth and kill hundreds of thousands of jobs. The study showed that a large reduction in federal spending would be better for the economy.

By Matt Cover at


“An add-on VAT would result in less economic growth as compared to a reduction in government spending, when addressing the nation’s long-term fiscal imbalance,” the report said.

This iss because a VAT would “have distortionary effects on consumption and labor supply, but a reduction in government transfers [spending] would not,” states the report.

That damage to GDP growth would not remain confined to the early years of the VAT, according to the analysis. Using a VAT to reduce the federal deficit – the main reason for enacting one – would cause economic growth to be less than half what it would be if the government cut spending.

“The drop in taxable retail spending and services is initially 7.5 times as large under a VAT (-5.0 percent) than after a reduction in government spending (-0.7 percent),” said the study. “After 10 years it remains 6 times as large.”


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