The VAT Tax

CNN has an article up today discussing the chances of a Value Added Tax, or VAT coming to the USA.  Billed in the article as “most potent, efficient machine for revenue generation yet invented,” implementing a VAT here would definitely be ‘change,’ though I’m not sure it’s one most people would believe in.   The VAT is common in Europe, and from what I can tell, most people despise it.

There are many ways to implement such a tax… if it comes it will be interesting to see what kind of social engineering it will enforce.  Taxing food & clothing will be seen as horribly regressive and against Democratic party principles, whereas jacking up the rates on Rolexes and BMW’s will have conservatives screaming ‘class war’ at the tops of their lungs.  If it comes, I’m sure it will be codified inside some multi-thousand page law that almost no-one will truly understand.

I am guessing someone in or connected to the incoming Obama administration is floating this as a trial balloon.  As the article notes, we have already committed to trying to spend our way out of this crisis, and that will require large sums of new revenue coming in.   Raising income taxes is probably political suicide, so something like the VAT makes sense, since it can be done behind the scenes and more often… especially given how well American consumers pay attention to small incremental price rises.

I wouldn’t be thrilled with another form of taxation being dumped on us, especially since it would be used to pay for government stimulus programs that I don’t think will work.  If nothing else, a VAT would probably mean less consumption of non-essential crap, which would be a good thing in the eyes of the sustainability crowd… just as long as that new Prius doesn’t get whacked too hard.

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2 Responses to The VAT Tax

  1. Jim says:

    Aside from value judgments about how the money will be spent, I’m all for a VAT or sales tax model of taxation.

    Of course, it sets up incentives that are different than the incentives we’ve known before. In the case of a consumption tax, the incentive is to consume less. Contrast this to the income tax, where the incentive is to spend more and find ways to make those expenses into something tax-deductible.

  2. Bart says:

    Consuming less is a good thing, sure. That will be forced on us one way or another I think.

    This particular article doesn’t mention repealing any existing taxes… just adding a VAT on top of normal retail and income taxes. If the powers that be want to re-jigger taxation to remove some taxes and add others, I’m willing to listen and see what they propose. I’m not a huge consumer/spender usually, so a consumption tax of one sort or another isn’t as odious to me personally as a huge jump in income taxes, for example. If the plan is to simply add a VAT to the list of taxes we already pay… well, tha’s a different story.

    Part of the problem in general is that our tax codes are so full of loopholes that it can be relatively easy to game the system one way or another. I’d much rather see a simple tax code with less rules and exemptions and be done with it…

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