New York City, The influential Federal Reserve Chairman Alan Greenspan bolstered the concept of consumption tax, which in the form of a national sales tax is bitterly opposed by retail interests. Greenspan described consumption taxes as a way to boost the economy when combined with income taxes. Greenspan testified before the President's Advisory Panel on Federal Tax Reform, which was appointed by President Bush in January to explore various tax-reform options including a national retail sales tax and a value-added tax (VAT). The Bush administration has said it hopes to simplify the tax code.
The VAT, common in Europe, is imposed on the increased value of a product as it passes from manufacturing through distribution and, ultimately, to the consumer. The National Retail Federation was quick to condemn Greenspan's comments. “We are extremely distressed to hear Chairman Greenspan speak favorably of any form of consumption tax,” NRF senior VP for government relations Steve Pfister said. “A national retail sales tax or VAT would devastate the nation's economy for years before economic gains-if any-would be seen.”
Greenspan said powerful opposition would make the concept of a pure consumption tax and replacement of income tax unthinkable.
A study commissioned by NRF in 2000 found that a national sales tax would bring a three-year decline in the economy, a four-year decline in employment and an eight-year decline in consumer spending. Another study by the congressional Joint Committee on Taxation said a 57% rate would be necessary to replace all current federal tax revenue. A VAT would have largely the same effect.