Why the U.S. needs a Value Added Tax

September 8, 2009

Swelling deficits and an aging population leave few palatable options when it comes to taxes.

The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.

Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.

The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?

VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.

Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.

Take bread. The farmer, miller, baker and grocer all pay their share of the tax. If the grocer cheats, the government loses only a quarter of its tax. Furthermore, each producer has incentive to make sure its suppliers have paid VAT. The miller becomes liable for the farmer’s share of VAT unless he can prove the tax has already been paid. VAT collection polices itself to a large extent. The sums of money that could be raised are immense, making it easier to strike a political compromise. Exactly how lucrative VAT would be depends largely on which goods are exempt.

Canada, for example, gives up about a third of potential revenue by excusing food, drugs and transportation from the tax. Even if the United States did the same, a 10 percent tax rate could raise $500 billion a year, according to Eric Toder, an analyst at the Tax Policy Center.

Raise the rate to 15 percent and you get $725 billion. (In comparison, income taxes are expected to yield $968 billion this year.)

This might be hard to square with President Obama’s commitment not to raise taxes on anyone making less than $250,000 a year. VAT is a regressive tax — eating up a larger share of the income of lower wage groups.

This could be offset through the income tax system. In addition, there would be a natural counterbalance if the tax were used to fund an expansion of healthcare. With current health proposals expected to cost around $100 billion a year, there would be plenty of money to spare.

Obama could also borrow a trick from Margaret Thatcher, who used the proceeds from almost doubling VAT to slash British income taxes. A 15 percent VAT would give Obama tremendous leeway to simplify a Byzantine income tax system and to cut rates.

And introducing a VAT need not derail economic recovery. Indeed, if the tax were introduced with a six-month delay it could even provide Americans with an incentive to bring forward spending.

America cannot temporize forever. The aging population will demand both painful spending cuts and tax increases. If the burden is placed on income taxes alone then any increase in rates will be monumental.

When politicians finally confront the looming fiscal crisis, a VAT would be an invaluable tool.

125 comments

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I can’t believe you want yet another tax. I am tired of being the goverments personel piggy bank. They should cut wastefull spending and programs that don’t work. I aslo believe a income tax is all that we should have because it is based upon a persons ability to pay.

Posted by Paul | Report as abusive

Really? We can raise more money with more taxes? Oh wait, it’s just another way of hurting our crippled manufacturing sector. That’ll be great for business, forcing even more jobs overseas. You can legislate all day long, doesn’t mean anything is changing.

Posted by Charles | Report as abusive

Bankers, insureres, traders, and the financial jobs are again favored with this tax since they DO NOT ADD VALUE TO ANYTHING.

Posted by Brennan | Report as abusive

First to say that I do agree that the current system is extremely convoluted and at times requires a team of people just to figure out the wording on tax collection. However, I do not think that VAT charging 15% tax on mostly everything vs. current system with 5-10% tax that vary by location, will be a supported and adored system by the consumers. I personally do not see an easy way of transforming to a cleaner system such as VAT without some significant repercussions in the first decade or two it is put into place. As an example, think of paying taxes on a new car worth $30k. With current average rate at 6-7% the tax is roughly $2k (still managable); with 15% rate it goes up to $4.5k (not so attractive now). Apply this to other goods, real estate, etc., and you will have yourself a revolt. VAT will seem more like Value Added Trouble. Someone needs to really analyse the taxes that are collected from sales, income, etc., and then adjust the rates and tally up so that the effect of change is minimal for most of us and only those that have a lot to spend a lot are really affected. This however cannot be done without other systems such as medicine, pension, etc. in place and working as a good substitute to counter some of the effects of the change (less money in the pocket) on low and middle working classes.

Posted by AB | Report as abusive

Why do you try to disguise the fact that the VAT is still another TAX? I do not care if other countries have this tax. We do notwant–and do not want to be forced–to pay for Obama’s spending madness. He must stop spending OUR money.

Posted by O. B. Wright | Report as abusive

Just what we need to keep the spending machine going. For a good review of the effects that a VAT would have on the US, please see: http://www.heritage.org/research/taxes/b g1852.cfm

Posted by Phil | Report as abusive

A great majority of US population has been locked into a quarter-century dogma – government is bad, tax is bad, and giving money to governments is worse than being nuked.

So the country is marred in a debt hole so deep physicists can’t calculate using their black hole equations.

I wonder what would be the situation if the federal government cancels or withdraws all liquidity, free checks and bailout money so far delivered or committed to the private sector? That’s about $15 trillion.

To all the tax haters – give the $15 trillion of government money back in exchange for no tax increase. Take your private sector debt of about $15 trillion, add the $15 trillion returned, and enjoy your $30 trillion wonder hole. You’re on your own.

Posted by The Real Deal | Report as abusive

Sounds like a great way to start a civil war. We have enough trouble getting consensus on enough tax to keep our schools running. A VAT would be as popular as trying to force the country to turn Buddhist overnight.
Except of course those who take value rather than adding it own a Congress and Senate that will eat anything with enough money on it.

Posted by Rodger Lemonde | Report as abusive

A VAT would be a viable option if and ONLY if at least 50% of the income tax that we already paid is completely cut. In other words, the Government would need to cut income tax by 50% to roughly 14% in order for this to be a viable option. Otherwise, you’re gonna have issues.

Posted by Justyn | Report as abusive

I don’t think anyone could ever sell Americans on a VAT, regardless of how it was implemented, especially since we’ve become such savvy web consumers.
If implemented, it would cause a huge black market and barter system in almost every sector of the economy. People already buy over the internet and cross state lines to avoid paying sales taxes. Fed Express and UPS would probably love this to pass since many people would start buying a lot of goods from companies outside of the US including sham companies in the caribbian that would just be fronts to funnel unsafe and untested products direct from China or where ever direct to consumer homes. Between that and underground flea markets and barter services, people would find a way not to pay tax for as much as they could.
That undercuts the ability to inspect or ensure safe products and sets up people to be ripped off by unscrupulous fly-by-night vendors of goods and services.

Posted by mike | Report as abusive

I think a VAT should be instead of an income tax. Collected on a graduated scale, that way the middle class and the poor won’t have to pay out such a large percent of their income. The best thing about a VAT is that everyone would then be a participant. ALL THE ILLEGALS and people who work under the table would now be contributing to the society they now take from. It just never seemed right to me that only the people getting an honest pay check should bear the weight of everyone else who doesn’t. That is a$$ backward, rewarding dishonesty and punishing the law abiding. Another tax that irks me significantly, is part of the property tax, where only property owners (mainly home owners) carry the largest weight of educating our young. ALL of society benefits from their education so ALL of society should help with that investment. I refer to mainly home owners, because big business is constantly being awarded HUGE TAX BREAKS as an incentive to move into a community.
Now, that city or county is receiving less income from property tax and so begins the decline of the schools and other important programs. It should be the other way around. A company should be required to benefit a community just as it states in most of our city and county bylaws. These laws that are no longer used. So I say again, a VAT should be in lieu of the income tax. I would much rather receive my full paycheck to spend where I choose instead of it being deverted to some corrupt politicians pet pork project. Of course at the onset there would have to be some tweaking to find the correct median between needs and affordability. Something that has gone OUT THE WINDOW, since the implementation of the tax LIE, we know as “trickle down economics”. It never trickled. In fact, (as our economy shows) it turned out to be a geyser in the opposite direction. I think a VAT would be easier to sell so long as it is not portrayed as an “us against them” tax, as is the case right now with the income tax plan. We are all in this together. This should be more of a patriotic cause than the “he has more so he should pay” crap. A country has needs and if we want them to met we ALL should contribute. We should not be demonizing the wealthy just as we should not be dumping on the less fortunate.
This goes for health care as well. Everyone should pay into the fund, not just the working who are lucky to have an employer that offers health insurance. A VAT would do this but we need a single payer fund that way all would be covered. I truly believe that the corruption in our political system is our major hurdle and a VAT would put a big dent in that corruption.

Posted by Masi | Report as abusive

How about repealing the income tax and replace it with a sales tax on products and services capped as follows: 20% federal, 7% state, and 3% local? No exceptions on taxable items or organizations and no other government fees except for postage and legal fines.

Posted by skerner | Report as abusive

I could agree with Swann, that perhaps there is a grain of sense in proposing a VAT — if he is willing to ALSO propose the elimination of all Federal Income taxes, and schedule the VAT so that it would be revenue-neutral with the lost income tax returns.

But, obviously, that’s not his game. What he wants is another revenue source for the DC bandits (Dems and Pubs) to spend on pork and special interests.

America needs to REDUCE the size and spending of our government, unless we are content to become just another run-of-the-mill “nanny state”, with a HUGE federal government controlling every aspect of our lives.

Posted by Mike | Report as abusive

For the wealthy, there is apparently never enough.

Notice in the article it intimates that the US, “alone among rich nations is not charging a VAT,” ignoring the fact that the US, “alone among rich nations,” does not provide adequate universal health care coverage, job security, unemployment benefits, or in fact, any semblance of social network to its own people at all.

If comparisons are to be made to countries charging a VAT, we need to compare the entire economic burden and social benefit scope of taxes and benefits, not simply “cherry pick” those we like and discard the rest.

At this point, we barely have the benefits an average Chinese citizen has, and the Chinese government is working to improve benefits to their people, while our vaunted “Democracy,” which we are so eager to spread over the world, is not.

The American people need to start asking themselves “what’s wrong with this picture” and begin to do something about it before the wealthy completely destroy this country.

Gordon

Posted by Gordon | Report as abusive

1. The Federal government needs to trim back on all the things it pays for now. Many things should be funded by private parties who “believe in the cause” if they have the loot and want to fund them. And – the PayGo rule should be an amendment to the Constitution and enforced as law.

2. Sooner or later we’re going to have to shift to taxing what we consume instead of what we earn. Kill income tax and implement a “consumption” tax on everything but food. Only fair way to do it and it would generate more tax revenue.

3. Every corporation that does business on American soil and that falls into a certain revenue range should be putting part of their profits into a big fund for education – they’re the biggest beneficiaries of a well educated work force. And they should be paying bonuses based on their net profit.

M2C

Posted by SGinOR | Report as abusive

heres another idea,,, just like those corporations that were bailed out with taxpayer money should have gone under… our government should be allowed to go under as well,,

they have exhibited their unableness to deal with , , , pretty much anything. i think its time for the people to take over.

if an employee fails to solve a company problem in a timely manner and a manner that conserves money,,, they wont hold the position very long at all,,, there is no need for government employees,,, including legislators,, to be any different.

Obama should “borrow a trick from Margaret Thatcher”? Ouch!

Hold on there a minute – doesn’t Obama already owe the American people up the wazoo for the change, less than a dollar, he failed to deliver? Indeed so. That and those bloody crooked bailouts.

Not to mention the people of Afghanistan, Iraq, Colombia, Cuba, Venezuela, Samoa and various other countries, plus the victims of Guantanamo to whom he owes a major apology, also to the people in The Hague an explanation for his reluctance to prosecute the criminals behind ongoing wars that have driven America decisively into the financial and moral toilet.

Obama’s already up to his ears in debt, all over the planet. At this point, his credibility’s completely shot and he’s no longer got any business borrowing anything from anybody. Not one red cent.

Besides which, The British Vampire was never exactly the most charitable person when it comes to working-class let alone dark-skinned individuals. Even if she were, the only trick that old bag’s got left in her is a big fat sweaty one for “Sir” Ronnie Reagan, in Hell.

Oh, and “Value Added Tax”? Only works where there is some vestige of a viable social contract between government and its people. The U.S. is not Norway – and it’s not even the U.K. – so in the United States, today, where there is no value to tax, VAT would amount to the shortest distance between once-proud America and all-out Class War.

Which, if you think about it, is kinda what Thatcher had in mind all along. Staked her career on it, didn’t she?

Bad advice, Chris. Try to do better next time.

Posted by The Bell | Report as abusive

[...] Federal revenue. It looks similar to the emanate is removing some-more attention, according to this brand brand brand brand new essay upon Reuters.com by Christopher Swann. In the essay Swann suggests that the VAT could compensate for illness caring reform, as good as [...]

Good article. It is simple to administrate and involves all classes of voters. As always, there will be one catch: Inland Revenues Services never scrap or decrease other taxes.

Where I come from this is the picture for a +- 70 year life expectancy scenario:

My marginal income tax rate = 30%; VAT 14%; Fuel levies <1%; Property tax <1%; Sin taxes <1%; Banking transactions <1% = operational taxes of <45%.

On the capital side: Property transfer duty = 8%; capital gains tax = 10%; donations tax = 20%. That is the ‘alive’ scenario.

The ‘death’ scenario: estate duty = 20%; executors duty 3.5%; trusts 40%.

All of this depends on tax structuring , but the mind boggles. On an operational level only, a ‘give’ away 45 percent of each unit earned, and I don’t get much for it.

That is why I don’t even bother voting, I can’t partake in something I don’t believe in. It is disgusting.

Posted by Casper Lab | Report as abusive

I’d be for a VAT on all imported goods except oil

Posted by john | Report as abusive

There is a far better way to raise revenue – tariffs on imports. Until 1913, the federal government raised all of its revenue through tariffs. We didn’t even have an income tax at that time. Not only would tariffs provide a large stream of revenue, but they would also provide the motivation needed to restore domestic manufacturing and to reduce our use of foreign oil. If taxpayers don’t like the higher prices that would come with the tariffs, they can easily avoid them by buying American.

Of course, this would violate the rules of the World Trade Organization, but it’s high time that we withdrew from that organization anyway. The WTO and its rules are responsible for the persistent trade imbalances that collapsed the global economy.

It’s time to stop giving away a chunk of our economy tax-free to foreign companies and start making them pay their fair share.

As we all know taxes curb consumption and that is why in a period of a crisis you do not need to hinder consumption.
I would ask you to think the other way around instead of increasing government revenue through taxes, why don’t you cut government expenditure for example on military operations, amunitions and stuff like that?

Posted by Galin Berbenkov | Report as abusive

The last thing the United States needs is another tax to give our already top-heavy government more money to waste on pork spending and programs hemorrhaging funds with little to no net-gain.

Cutting spending is the only solution that will sit well with the American public. As Swann pointed at, Americans have a very pointed revulsion for taxes on goods, and tend to blackball politicians who like to suggest them.

Posted by Bill Kazekeitas | Report as abusive

I’ve got a better idea. How about we get rid of the 20 million illegal aliens who are sucking the life out of this country? That would ease the burden on healthcare, education and social services, it would also reduce crime and ease the burden on our criminal justice system. Then, we could stop sending billions of dollars to foreign countries who don’t appreciate it. We don’t need more taxes! Do you really believe that if this VAT passed, that it would go to cutting the deficit or paying our debts? Of course not! It would be spent on more useless and wasteful programs designed to benefit those who contribute the least to our society!

Posted by Ron | Report as abusive

Taking more money from americans so the government can dole it out to who they want to sounds like a great idea. We would also get to pay for the bureacracy needed to execute the collection of the money and the spending of it. That’s way better than just keeping the money I work for. END SARCASM. The author is an idiot. I have no clue how he continues to get his work in Rueters.

Posted by Peter | Report as abusive

In principal VAT plus a lower income tax is fine in most countries but not a federal model where states pursue different tax strategies. I live in New York City -my tax’s are as follows:

Federal: 35%
State Income: 6.5%
City Income: 3.4%
State Sales: 8.5%
City Sales: 4.5%
Property Tax: 15.7%

I simply cannot pay VAT – Ill just buy more from the black market and forgo a full receipt – which I allready do in any of many shops in New York that get around full sales tax or buy online in other countries.

Posted by Raj | Report as abusive

this commentary does a great disservice to the vat system that is absolutely great. vat should not be used to raise taxes but to adapt taxation to a modern economy. vat is a consumption tax that exempts investments from taxation and put manufacturing and services on an equal footing.

Posted by marc itschner | Report as abusive

Enough of the taxes. This country was founded on a revolt about taxes. Stop publishing this double speak. Think of how far the USA has gotten without a VAT.

Posted by Mike | Report as abusive

Gee !!! Such great ideas I’ve read here, but …. the one idea that appears to be missing is – WHY NOT GET RID OF THE BLOATED, BLOOD-SUCKING GOVERNMENT ITSELF. Why do we need all the Czars, Federal Gov’t Agencies and Federal “so-called” programs – none of which work worth a damn except to create “make-work” for a vast group of unemployables. If the Federal Government returned to what was initially created by the founding fathers, then we would have such usless entities as the Dept. of Education, among others.

As for those who “work” for these usless Fed Agencies – let them go out and compete for a real job. If they can’t hack it, then you know what you were paying for from when they Fed employees …. NOTHING !!! You may as well as taken your tax dollars and put them in the fireplace. At least then you would have received something in return for your money.

Posted by elstupidojaime | Report as abusive

The thing that is truly astonishing is how we, as a Nation, have become so blithely accepting of being robbed by politicians that instead of demanding accountability from the poor stewards of our public trust, we apathetically shrug our shoulders and think that robbing ourselves with a VAT will cure our ills. Have we become that pathetic?

Posted by GLK | Report as abusive

Why do we always concentrate on finding ways to pay for wasteful spending via VAT, taxes on sugary product or other tax gimmicks instead of addressing the problem at hand – the spending? Cut back on these ridiculous $200M planes and $2.2 Billion bombers and you can cut $100B/year from the defense budget: Voila! there’s your $1 Trillion dollars to pay for universal health care over 10 years.
Sorry but if my lip is bleeding on a daily basis, I don’t try to find out which is the best bandage solution and how I could best pay for it. I simply try to get it treated once and for all and stop the problem at the root instead of having to find new and more expensive remedies every day.

Posted by Mike | Report as abusive

How do we get rid of ignorant people like Christopher? It’s his ignorance and ability to reach the masses that has gotten us into so much fiscal trouble today. Another tax? What an idiot!

Posted by William | Report as abusive

If they do this when so, so, so so many people support the http://www.fairtax.org instead, then I would have to say something is wrong and they are not working for the people anymore.

Posted by Ken | Report as abusive

the so called experts are the ones who think its needed then they should pay it.for the rest of us we are fed up with the corruption and partisanship of the goverment i want out thank you. the freedoms we had are gone now they want to tax us more then bite me

Posted by TheBatMann | Report as abusive

One of the primary reasons Europe does not experience the same level of growth as the US is the VAT. More government is not the model for improving our country. The correct approach to current and looming deficits is to spend less. More money flowing through Washington DC means more power. The politicians already have too much power over our economy and personal lives.

The point of public policy is not to protect Obama and the democrats.

The only acceptable tax is one that everyone can see all the time. The VAT fails because it is largely hidden in the final retail price. The FairTax would a) replace the existing income tax completely and b) be printed on every receipt in full at the point of retail sale.

Posted by Will | Report as abusive

Peter and William, why don’t you play the ball rather than the man ? While you figure that one out, look up the meaning of ‘Socratic irony’ and the spelling of Reuters. Only the Western Hemisphere reads our $hi+ in any case, so that cuts out 4 billion of the masses.

Well done to the author.

Posted by Casper | Report as abusive

VAT is a bad idea, no wait, a horrible idea. Why would taking more of our money help anything? Let’s try capping government spending and halt the bail out of the private sector instead of increase taxes and the size of our government. Why not let capitalism work by supporting the middle class and small business? New taxes will only give the average citizen another reason to stop spending money in an already ailing economy.

Posted by Matt | Report as abusive

LOL. America is soooo overdue for a Bastille Day.

A straight forward flat sales tax across the board would be much easier and less complicated. It also assures that EVERYONE pays their fair share in taxes since it’s based on consumption. Eliminate the income tax all together. But the rich don’t like it because they don’t want to pay anything in the way of taxes. And since the rich have more money to spend they would pay a naturally heavier portion of taxes simply because they can and will spend more.

And if making financial gains is the only motivation for a new tax, then one needs to ask just what those tax dollars would go to. Would they go to serving the interests of the citizen, or will the tax money simply be another vehicle to power spending initiatives that favor relatively few members of society?

Take a portion of the tax money collected from a flat sales tax and redistribute it back to the population equally. This will help to keep a consistent low level stimulus in place for citizens which they can use to help them achieve their individual goals.

It is acceptable when we as citizens pay for the crimes of the business sector. It’s time the citizen was taken care of as well. If it’s okay to force a citizen to pay for corporate crime by way of taxation, then it is reasonable that the citizen should also be invested in. We are the “backbone” of the American economy. So why are we constantly being bent over when we should be standing tall?

Casper you included a space after man and before your question mark. But keystroke error’s and misspellings don’t detract from either one of points. I’m just not sure what exactly your point is. You didn’t state one. “Well done to the author.” Was that it? So much for the playing the ball. Idiot.

Posted by Peter | Report as abusive

The person or persons who wrote this must work directly for Obama.

Posted by Jon | Report as abusive

Eminetly sensible and well reasoned. However poor old Jon doesn’t seem to understand bless him! As a regressive tax its one that Republican think Tanks have been touting for years and ethically its anathema for the Dems. Politically however it makes sense; a one off hit to the inflation figures and then the tax hike is forgotten about; in Britain Thatcher is still remembered as a tax cutter, even though her first act on gaining power was to double VAT. How quickly people forget.

Posted by Nigel | Report as abusive

I think Jon in wrong. I did not get an indication of the author’s political affiliation…in fact this article could have been written by a republican trying to make the VAT seem like a great idea while knowing it would surely sink Obama’s chances for re-election. And more to the point, why didn’t the author discuss the negative sides of implementing a VAT. Perhaps we should be less concerned with the author’s political bedfellows and more concerned with the fact that we don’t have a counter-point against which this piece could be compared.

Posted by johnnybravo | Report as abusive

This would be a huge slap in the face to those of us who saved all our lives, foregoing early fun for future security. We sacrificed and saved BECAUSE we assumed we’d get to use the savings in our old age. Our savings have already gone through the wringer of income taxes, and we accepted that. But passing them through an additional trimming-by-VAT wouldn’t leave us much reward for all that effort and doing-without. If the government lowers income taxes, our previously-saved money would not benefit from that part – only younger people would. I hope all baby-boomers realize that they’d bear the brunt of the switch, directly on their life’s savings. I hope all younger people realize that if the baby-boomers become unexpectedly poorer by VAT trimming their savings, younger people will have to pay for their parents, unless they prefer to just watch them suffer. It’s a lose-lose tax situation.

Posted by Carole Richards | Report as abusive

‘counter-point’ = all these vicious commentaries.

Posted by Spell check | Report as abusive

A tax is a tax is a tax. the American people will punish the legislators that stick this hand into their wallets.

Posted by G Pendergast | Report as abusive

Since American capitalism has failed so badly of late, and the only thing that has kept us out of the Second Great Depression is government spending, we do need to come up with new sources of revenue. I always get a laugh when I read a post from someone who says we need to cut spending and let the markets fix the problem. Where have these people been the past two years? I don’t know if they’re delusional or merely poorly educated and misinformed simpletons. I’m not wild about another tax, but I’m a realist who doesn’t buy into the “efficient market” school of economics. Government is the only friend the average American has these days, and we need to fund that government properly or watch our standard of living deteriorate to third world levels. Look at the cash for clunkers program (that’s right, a gov’t. program) — people ran out to buy new cars only because the rich Uncle Sam ponied up the cash. Where did that money come from?

Listen closely, the USA is not going back to business as usual. Why? Because there are no more good jobs being created here (ask any recent college grad), America doesn’t make anything the world wants to buy, easy credit is now an historical footnote, and real unemployment is closer to 16% than it is to 10%. Go to any large city in the USA and you’ll see that the beggars are back.

Posted by Bob Foster | Report as abusive

In response to Carole, yes it would be a slap in the face, but lets face it America is broke! Its not a question of whether new and higher taxes will come (of course we’d rather they didn’t), but of what form those taxes will take. Do you target earned income, capital gains or expenditure ‘cos lets face it; someone’s going to pay.

Posted by Nigel | Report as abusive

How about a tax on gasoline prices? It is done here in Canada. It makes poeple conserve energy and the funds go back into the economy. Therefore the US would have less money going out of the country to “foreign oil” and more money stays in the country. It will reduce the price oil due to lower demand. It will stimulate purchase of economical cars. Will reduce emissions as well. This would be an easier win for Obama than pushing for the VAT tax.

Posted by Vincent | Report as abusive

The VAT and Sales Tax proposals both assume the American consumer will be able to pay these bills. There are too many former consumers who are unemployed, underemployed or underpaid with little hope for improvement. Most of the middle class have learned they have to reduce debt and increase savings for their own economic survival.
That leaves just the affluent and wealthy to go out and consume for the whole country! I’m not holding my breath waiting for that.

Posted by Cordell | Report as abusive

Take a look at the tent cities, rising unemployment, foreclosures, and ask if the politicians have any grasp of the real world the rest of us live in. Money moves from one person to another, it is not grown on trees. So take from the poor and middle income and give to the politicians and their cronies…and how would the taxed citizen benefit ? Let us see; as a middle income person, I received NO stimulus check, NO tax credits to purchase a home, NO clunker credit since I walk to work and have no car, and I can look forward to more taxes. It should not be business as usual starting with cleaning up the big spenders and waste in government.

Photos showing the impact of wasteful and excessive government spending:
http://www.nytimes.com/slideshow/2009/03  /25/us/20090326-TENTS_3.html

Posted by Amanda | Report as abusive

You don’t seem to get it. Abolish taxation – completely. We don’t need to pay taxes for anything, and soon, we won’t. Don’t believe me? Just sit back and watch. We’re here.

Posted by Joel | Report as abusive

There is no such thing as a fair tax since all taxation is legalized theft. Robbing from the rich to give to the poor is just as immoral as stealing from the poor to give to the rich. What Mr. Swann is advocating is taxation without representation. He assumes, as all big-government types do, that the money we earn belongs to the government anyway and that government has the right to take however much they desire with or without our explicit consent. More taxes=more government=more corruption=more taxes=more government,etc. In America about 60 cents out of every dollar goes toward taxes. Most of those taxes are hidden in one way or another. Sometimes they are not referred to as “taxes” but rather “surcharges,” “services fees,” and “registration fees.” America is not the land of the free. I’m looking for another country to move to. The Democrats and Republicans are sending America straight to hell, and I’ll be damned if I’m going along with them.

Posted by Mufaso | Report as abusive

No, no- just tax the richies!

Posted by Bob | Report as abusive

How about Fair Taxes?….Uhmm too complicated for the Marxists pea sized brain…

Posted by Roses | Report as abusive

Mufaso; how can it be taxation without representation if its the representative government who would be levying these taxes? Unless of course you don’t have a vote in the US,in which case of course you’re right in your own situation for what that’s worth.
Ultimately a VAT will arise, though doubtless dressed up as an American rather than God-forbid a European innovation. It’ll be called the Liberty Levy, or the Patriots Charge or something………..

Posted by Nigel | Report as abusive

I’m with Joel. We don’t need to pay taxes for anything.

Posted by Nigel | Report as abusive

I think Johnnybravo is smoking the same stuff Mr. Swann is sellin’. I guess Mr Swann lives in utopia, think of all the money we could bring in with a VAT, and then all the programs we could have for the poor, lazy, and illegal. Free education, free medical care, free daycare, so mama doesn’t have to miss her soap operas. Problem is, we live in the real world, not his journalistic candy land. He missed the whole point entirely, you could tax gas, food, clothes, water, soda pop, paper, books and sex for that matter, but it never solves the problem, because the “tax and spend” democrats create larger government control and more programs. We need to cut spending. It’s basic economics just like any high school kid understands. All the whining about the aging population. Thanks to Obama, and Clinton passing partial birth abortion, that means millions of people who would grow up, spend money and pay taxes are now killed. Then we send 80 million overseas to help them stab scissors in the necks of babies as they are born and mutilate their brains. I live in central europe, with socialized medicine and 23% VAT. Johnnybravo and Mr. Swann should visit, but not stay in the 4 star Hyatt, and get out and see how the real world lives, and be sure to drive on the roads here, and get some dental work done, or visit one of the hospitals. We need personal responsibility and not more government control. You think Nobama will take care of you, when his aunt is living illegally in the projects in the north, and his brother is below poverty in Africa. How about redistributing some of the wealth, Barak??? He spends like a dr.unken wh.ore with her daddy’s platinum card.

Posted by Dozanne | Report as abusive

Sir,

Are you nuts? There are no new ideas from the educated as they have become narrowly agenda driven. Looks as if this columnist is part of the heap. Borrow from others and repackage as new.

Regards,
Bill

Posted by Bill Haught | Report as abusive

the best thing to do is to cut government spending, therefore an VAT would not be needed. in addition, we can have less government disrupting and disturbing our lives.

Posted by James | Report as abusive

Regardless of what tax (or other measures) are issued, the root cause is not being addressed. The VAT may be a necessary stop gap to help keep the U.S. afloat, but it does not appear to be “fixing” any of the underlying issues. However, one would hope that with a balanced budget or smaller deficit those issues would be countermeasured. But lets not forget it is the U.S. government.

Posted by Levric | Report as abusive

The days of Conservative “Something For Nothing”, are over.
You gotta pay the Piper sooner or later, and the VAT seems to be the most palatable.
I’ve just discovered that the term “Uniquely American” really means to be in denial and unable to learn lessons from others.

Posted by WeNotMe | Report as abusive

How about a poll tax?

Americans have always said there should be no taxation without representation. So those who are represented, should be taxed for the luxury.

Posted by Haha | Report as abusive

Why do we want to give the federal government that kinda money? They already dug themselves into a ditch with the previous money we gave them-social security and the national debt come to mind. If we give them more tax, they will just find more far flung ways to waste it. Where was the rainy day fund? Where was the oversight? There were none and that is why a VAT tax would be just one more step toward a complete wasting away of the USA. We need less taxes right now and responsible government, not more taxes and more government spending!

Posted by Bryan | Report as abusive

Increase income taxes on the wealthy; a VAT will give the wealthy an unfair tax advantage.

Posted by Mr Waters | Report as abusive

VAT: give an inch, take a mile.
This is the attitude of US Govt politicians. They will find a way to have spent the VAT and comeback asking for more. ENOUGH!

Posted by Weebescrewed | Report as abusive

I get the impression that most of the people on here championing a reduction on taxes are (based upon their limited grammatical abilities) amongst the lower paid in any event. I think they’d be surprised to learn that they are probably net beneficiaries rather than contributors to government. Do they really want a world with no roads, schools, libraries or garbage collection (or heaven forfend, no military) or are they too simple to see why Government may have a purpose?

Posted by Nig | Report as abusive

Yes, certainly, let’s throw more money at a broke, corrupted system and hope it fixes it. Since that has worked so well before. BOA probably needs another 10 million dollar office renovation for their CEO. Less government, less tax, fiscal oversight, fiscal responsibility. Period.

Posted by Paul | Report as abusive

…even better Haha, a pole tax, because that is where the US economy finds itself, up the pole. Swann is merely suggesting that the current budget deficit be crisis managed on an equitable basis, I think. Voters should shut up and pay their taxes, especially jocks.

Posted by Casper | Report as abusive

No Way!
VAT is no simple tax. It would pretty much require creating a new bureaucratic machine within IRS to collect this thing.

Posted by PwlM | Report as abusive

Income taxes alone already take 25 cents of every dollar I earn, leaving me 75 cents. Taking an extra 14% would reduce my take-home pay to 61 cents, which effectively lowers my income by 19%.

The article’s point seems to be that the VAT income would be used to shore up the deficit, not pay for anything new. I’m not interested in lowering my quality of life by 19% to get nothing in return.

I know that something must change, and that taxes will have to go up before they can go down. However, simply taking more money will fix nothing. During his canidacy, Obama said he wanted to go through the budget line by line and remove wasteful spending. Since being elected, I’m not aware that he’s cut anything from the budget other than some bombers. Instead, he’s been giving more money away.

I want to see the government spending money more efficiently before I’ll be willing to give them more.

Grow up. We need to pay for what we get. It is better to face these problems now than harbor the infantile belief that we can just put budget problems off for yet another day. I want safe bridges, good schools, national parks and look forward to the security benefits I hope to receive after I retire. I question those who get hot and bothered about the inefficiences of goverment and yet do nothing about it but whine. We need fair taxes and good oversight. Raise taxes on those who benefit the most from our capitalist system along with VAT taxes on those who spend the most. It makes sense, it is fair and if someone with the insight of a good conservative or liberal can make the case for it now.

Posted by Jonathan | Report as abusive

As long as Americans continue with their wasteful comsumption and unrealistic energy pricing. There’s no hope for them. The goverment is only doing what it’s people want and continue to do. Consume consume comsume!!
Until the average American pays for the true costs of it’s energy comsumption and NOT stolen resources from some third world tin-pot country they invaded or rule.
Maybe then they will wise up.
It’s not your goverments fault, it’s your own!
Only $2.50 for a gallon of gas?! Americans need a reality check.

Posted by Dutch | Report as abusive

Hey, I got an idea, instead of increasing taxes. How about cutting spending? Cut the things that are not absolutly necessary to keep the country running. Start with NPR, and the endowment for the arts. Sure those things are nice if you can afford them, but they are not necessary. Public TV can go also.

Posted by craig | Report as abusive

This guy is on crack!
Deficit spending is already a flat tax on all of us.
The problem is not consumer spending.
It is government spending money it does not have.
Oh wait, they can just print more money and more money.

The US would be better off if money would just grow on trees instead of the Federal printing press.
It’s a fact, “Bubble Economics” has not, nor ever will work. History has shown us that all governments that have tried it eventually collapse anyway.

Unfortunately for us and the rest of the world,
all governments play it.

Posted by David | Report as abusive

hmm, $500bln you say? how much do the wars in Iraq and Afghanistan cost annually? does the author assume US will wage a perpetual war for the foreseeable future?

Instead of creating another level of taxation, let’s just stop invading another countries and killing their inhabitants. US could also curtail developing stupendously expensive military hardware for the sole purpose of providing few jobs in some senator’s home state.

But that would be too easy.

Posted by torr | Report as abusive

I don’t mind paying my fair share of the government’s debt and expenses as long as the government spends it wisely and not wastefully. Let congress cut out the pork and mindless spending, then ask the public for additional financial help. Don’t wave the flag of “we need money for healthcare reform” while pumping $$$ into pork projects that only help a few (if even that). Clean up the pig before it comes to the trough.

Posted by RickL | Report as abusive

OK lets take a real look at what vats are. 1. Vats are an indirect form of taxation, in where each level of production on an item is taxed. 2. This tax is levied against each business taking part in the production of an item. 3. The vat is in no ways any different than normal tax. You pay the same amount of tax as required by the government, however it is collected differently! VATs are simply a different means of collecting.

Now that we have a general idea of a VAT lets figure out why this newb says VATs are worth the time. Number one, this puts liability on corporations which in turn means that business will have a crap load more accounting to do. Second, the idea of VATs was implemented not to increase revenue directly, but to establish a way to collect taxes indirectly as a way to combat tax evasion. Third, VATs tend to be volatile, in other words, companies make products, pay their taxes and set a price, but due to supply and demand, the end consumer doesnt buy, so business stop making as much products. So instead of, And this is the KEY to arguing against VATs in our current economic situation, YES VATS MAY IN A PERFECT WORLD AND ECONOMY BE USEFUL IN RAISING REVUNUE BUT IN OUR CURRENT ECONOMIC SITUATION WHEN BUSINESS ARE PRODUCING LESS PRODUCTS, THAT MEANS LESS TAXABLE PRODUCTS, AND IN TURN LESS REVENUE FOR THE GOVERNMENT. How does this differ from current taxation? By taxing on the consumer end as opposed to the production end you establish that no matter what the outcome the government will get the overall amount of sales. Though VATs may be a good idea later on, I am a Firm Believer that in the wake of our current economic slump, that VATs would be a bad idea. Now should our economy turn around and become stable, then perhaps VATs would be a decent alternative since when taxing businesses you can very well get way above 10% tax rate with less evasion, SO it could work. But the limitation of the economies ebbs and flows being a direct relationship with the overall amount collected its a bad idea.

just a thought.

Posted by Aleks | Report as abusive

Like most people who examine VATs you are heavily lowballing the amount of money it would raise, by at least 50%. There is so much money out there not being presently taxed that the rate would not have to be nearly 15% to at least equal present tax revenues.

Why there is the budget deficit? Say California, the 8th largest economy if it is a country. The reason is because of public employees union, far fetch? Look, union fight for salary increment, benefits (health care…) and worst of all The Defined Pension (85%+ last pay check with inflation adjustable increase). When a person is in his/her late 50, if he/she get 85% pension benefits and if he decided to work another 365 his pay difference is 15%. So he will retired and enjoy 20 years + of golfing…, who take up his job – the new guy, repeat this story for 50 years, now California public sector is paying 5.X salary for 1 person to work. Now you know the problem, how to solve it? It’s simple but not easy – Inflation. Print money and collapse the system so we can reborn. And by the way like it or not we’ll be heading that way. So invest your money in business that least affected by inflation.

Posted by SWW | Report as abusive

Mr. Swann conveniently forgets we are talking about Americans here.
With 200+ years of history with NO Value-added-tax, we are not about to go that way. Nope. not gonna. Before we accept that, we will burrow even deeper into a black (hidden) economy, doing more & more in cash alone, going to more garage sales & thrift stores, doing more in barter.
yes, the politicians may impose it on us (& I bet the greedy cowards will exempt themselves from it, as usual !) — but we will not submit. Don’t tread on me !

Posted by K A | Report as abusive

Instead of keep implementing these spaghetti solutions that require more solutions that require more solutions that require more solutions, ad infinitum…. why don’t we just kill Obamacare, bring the troops home from Iraq and Afghanistan, fire all the czars, impose a 15% across the board cut on the Federal government, and adjourn Congress for a year. That should solve a lot of problems.

Posted by The Joker | Report as abusive

[...] ballooning deficits and an aging population, America’s least-bad choice may be the creation of a new value added tax. 6 comments! Go to [...]

Implementing a VAT in the U.S. would restructure the economy in positive ways in this era of globalization (and outsourcing). Imports would carry an equal burden to domestically produced goods and services, thus working to level the playing field for U.S. corporations and workers alike.

The best way implement a VAT would be to use it to pay for universal healthcare vouchers (to be used with private insurers or a public option at the choice of individuals), and to replace the corporate income tax which has dropped from 30% of federal receipts to about 9%.

What would this do? Eliminate the direct disincentive for employment represented by healthcare costs. Eliminate the double-taxation of dividends. Eliminate the incentive for U.S. multi-nationals to park profits abroad, i.e., create a capital magnet at home. Everyone wants healthcare, and everyone would pay for it, including the currently uninsured who are now serviced in hospital emergency rooms.

(Ret.) Sen. Hollings estimates that a 4% VAT would pay for universal healthcare and 3% would replace the corporate income tax.

Posted by VATfan | Report as abusive

Also, I have a better idea. Legalize marijuana and prostitution then tax both. You’d get a better return than vats.

Posted by Aleks | Report as abusive

This is one of the dumbest things I’ve ever heard. A tax that punishes people who produce in order to fun the stupidity created by Congress’s overspending and our ridiculous welfare state.

Entrepreneurs of America can say “Goodnight” to their freedom to profit from their own hard work.

Posted by Chris | Report as abusive

It is a mistake to present VAT as an additional tax. When Thatcher increased it to 15% in the UK it was to meet urgent overspending commitments by the previous (Labour) government and open the way to lowering personal taxation. Over time she reduced the highest rates of income tax from over 80% to 40% this had a massive incentive effect on all levels of worker. If advocates of VAT in the US are to make progress they must emphasise the importance of VAT replacing existing high levels of taxation. The great advantage of VAT is that when times are hard, unlike income taxes, some of it at least is optional.

Posted by Clive S | Report as abusive

Value added taxes, taxing businesses.. it all just hits the little guy harder.
FDIC fees, feeing healthcare providers.. Cmon!
what about better enforcement on capital gains taxes to start?

Posted by Tom Groth | Report as abusive

Re: Chris… I think you’re missing the point here, businesses will just pass the fees on to consumers… there is a floor onconsumption for everyone… you’d end up taxing the POOR more?

welfare state? yeah… right now we’re living in a corporate welfare state – handouts to big business are all too common.

Posted by Tom Groth | Report as abusive

A quick response to Chris’s comments below.

Switching from direct to indirect taxation creates more disposable income in the hands of individuals who can then choose what goods and services to buy. This greater purchasing power creates opportunities for businesses. It does not tax the producer any more than the present system when it reduces disposable income through direct taxation.

Posted by Clive S | Report as abusive

The US does NOT need another tax. It needs MUCH less government spending at ALL levels and LOWER taxes! Just because the rest of the world is foolish enough to tax themselves into lower growth and higher unemployment, we in the US should do the same. Ridiculous!

Posted by Howard Daniel | Report as abusive

<<>>

Is exactly the arguement against it. It is far too easy for politicians to solve every problem by going to the same well of raising this less visible tax. Go to the Honda WWW and check out the price of a Civic. Yikes

The most frightening paragraph, but not the only one, in this article is …

“This could be offset through the income tax system. In addition, there would be a natural counterbalance if the tax were used to fund an expansion of healthcare. With current health proposals expected to cost around $100 billion a year, there would be plenty of money to spare.”

Since when did the politician have “money to spare”. If any were even close to apearing it would be spent.

Let’s control costs, not raise taxes of whatever kind.

Posted by Ron Tolman | Report as abusive

Want the economy to take off like a rocket?:

1. Repeal the job killing payroll taxes on both the employer and the employee.
2. Repeal the export killing corporate tax.
3. Reduce the 10% bracket to 0%
4. Reduce the 15% bracket to 0%
5. Create a new 50% bracket on incomes over $500k.
6. Install a 13% VAT on all goods and services.

This would eliminate paycheck taxes on families that make less than $80k and reduce them on everybody making less than $500k.

Foreign and Offshore Corps would get hammered for their treason when they bring their wares into the USA! The rich who employ Americans would pay a little less and the middle class would pay alot less!

$2.2 Trillion in imports @ 13% would be $286 Billion dollars. No more free lunch when you move jobs out of the country!!!

Posted by Chris in Ky | Report as abusive

VAT is an intelligent tax in that it is self-policing as is a sales tax. It is akin to the “Fair Tax” national sales tax proposals that many (conservatives) advocate. VAT does raise the cost of goods equitably (equally divided among suppliers), therefore, it does raise burden on the poor. However, a monthly rebate of tax based on number of dependents would go a long way toward levelling that playing field.

If you ask an American if s/he wants to pay more in taxes, the answer is an emphatic “NO!”. But, ask that same American about cutting the services that government provides to him and the answer is also an emphatic “NO!”.

So, what comes from that is that the government can either cut the services to be commensurate with the income, sell its assets or borrow funds to satiate that very American’s wants.

The time for living beyond our means is at an end. The longer it takes for us as Americans to realize that, the harder it will be to dig out from the mountain of debt that has been accumulating over the past 28 years.

Since there are so many politicians (think Reagan, and the Bushes for a moment) who have such animosity for government (“…government IS the problem” – Reagan Inaugural address 1981) that they install buddies or supporters who have neither the experience nor the capacity (“heckuva job, Brownie”) to properly manage the organization with which they have been asked to run.

When someone finally does get in who wants to truly effect change, there is such cynicism already in place from the incompetence of previous administrations that nothing good can get accomplished.

It was Bill Moyers who said “People who don’t believe in government are likely to defile government”. Truer words were never spoken.

Posted by Brad | Report as abusive

More bad ideas for an already incredibly imbalanced economy. Mexico has a VAT, look how good that works. Tax wealth at 10% and income at 2% (as indicated in the Koran) and all will be well.

Posted by Berynice | Report as abusive

Wow! The tone of this article has me envisioning the author greedily rubbing his hands with glee, dreaming of the MASSIVE amount of money that can be fleeced from the population through VAT! NO, we do NOT want our country taking even MORE of our hard earned money!!

Posted by Jeff | Report as abusive

How about a National Sales Tax, where everyone is only taxed on what they spend not what they make. And kill income tax. That would mean that illegals, tourists, rich and poor would all pay proportionately to what they spend. What are we afraid we couldn’t survive without the IRS? Or that we might become a saving nation? Or perhaps a flat 10% would just be too easy and that wouldn’t be government like.

Posted by Beth | Report as abusive

responding to clive s response to chris below

Do you know exactly how VATs work? I hope you read my post a couple pages ago. First off, It does not create any more money for anyone. Lets take another insight on VAT collection. (Wish there was a rating thing on here so the good comments stayed at the top) Anyways. VATs simply shift the tax from the person to the producer. But the the overall price to the person does not change. here is an example

Under current taxing at 10%
The manufacturer pays $1.00 to buy materials
The manufacturer charges the retailer $1.20.
The retailer charges the consumer $1.65 ($1.50 + $1.50×10%) and pays the government $0.15

Under VATs at 10%
The manufacturer pays $1.10 ($1 + $1×10%) for the materials, and the seller of the raw materials pays the government $0.10(1).
The manufacturer charges the retailer $1.32 ($1.20 + $1.20×10%) and pays the government $0.02(2) ($0.12 minus $0.10),
The retailer charges the consumer $1.65 ($1.50 + $1.50×10%) and pays the government $0.03(3) ($0.15 minus $0.12), so the government gets
.15 {$0.10(1) + $0.02(2) + $0.03(3)}

So, the only real way to make more money is to raise taxes above 10% vats or no vats.

Posted by Aleks | Report as abusive

Not to self: Make a list of districts with congressman signing on this proposal and plan a run for those seats. Great chance of getting into congress for free. Better yet, try for a senate seat. Cuchy six year mandate, no responsibility, good pay.

Posted by Required | Report as abusive

the cell phone working

No tax is going to be “enough” for politicians. Piling on tax after tax after tax and doing nothing to seriously and drastically cut spending is sef-defeating. Only the powerful elite who wish to control everybody else in our societies benefit. Or they think they do. When everyone is better off, the rich are better off, too. Why is it that people don’t understand that total government control is through the pocketbook, and so is total world poverty.

Posted by Karen R | Report as abusive

China charges a VAT of 17% on our goods. We charge them zero.
France charges 19.6%. We charge zero.
Mexico charges 15%. We charge zero.
Canada charges 6%. We charge zero.
Does anyone see a pattern here?

Is it any wonder that we only export $1.4 Trillion but import $2.2 Trillion.

Free Trade isn’t free. The VAT functions like a tarrif on imports and everybody charges one except us.

Posted by Chris in KY | Report as abusive

/this is inane. I can not fathom the cheating that must go on with VAT. And let’s consider the bureaucracy too – if they’re stuggling with the cash for clunkers imagine a tax on everything we buy. Scary. This should cause massive protests. Tax the rich, fairly – leave room for capital gains -and spend responsibly. Reverting to an entirely different system we don’t have time for please.

yes, lets tax the imports!! Excellent idea ! It is only fair ! Come on …. thats why we have a problem to begin with. Unfair trade.

Posted by kevin demay | Report as abusive

Repeal the Bush tsx cuts. Raise the rates on the super wealthy. Problem solved.

Posted by Mark | Report as abusive

Various responses to points others have made:

*Free trade is not what made this country.
Mercantilism is what made us the power. China is running the mercantilist playbook as we speak.

*The VAT would be much harder to cheat on than the other taxes. It is much easier to manipulate profit than to conceal revenue.It would require collaboration to hide from the VAT. While right now, American Corporations are moving to Bermuda or the Caymans or Asia to avoid U.S. Corp Taxes.

* It is crazy embedding our taxes into our goods only to have them get taxed again when they get to their foreign destination. It is even crazier to allow imports to come and be put on the shelf tax free next to their American competitors.We get whooped on trade coming and going.

* A National Retail Sales Tax would be much easier to cheat at than a VAT.

* The reason that totally abolishing the income tax won’t work is that it would benefit the super rich the most. A CEO who makes $30 Million makes 750 times what a schoolteacher makes $40K or 600 times what a nurse makes $50k. Yet all 3 are taxed about 30% when you factor in state, federal, and local. This would cut the CEO’s
overall tax burden below these people.

Posted by Chris in KY | Report as abusive

The USA has already taxed its people into the dirt with very high income taxes (meaning taxes on income, including wages, not just “income tax”) in comparison to the rest of the industrialized world. Now let’s pile on and take more from the working people and the poor so we can promise them more benefits they have already been promised and charged for. And then maybe we can invade four countries at once instead of just two.

Until our “leadership” that has diverted social benefit taxes from their dedicated purpose (i.e. Social Security and Medicare) is held to PERSONAL account, we will never be able to even dream about getting anything from our government except more tax bills.

What we need is to give all Federal lands and buildings to a Social Security / Medicare Trust and make the government pay market rent. We can also charge an Excise Tax on the export of arms, payable ONLY to the Trust fund. In gold.

Posted by Mike L | Report as abusive

It is incorrect that we are the only country not taxing consumption. I pay 8.5% sales tax where I live and there is a similar sales tax in most places in the US. Sales tax is on revenue – on everything.

The European countries charging 15%-20% VAT others here have pointed to
- do not have any additional sales taxes
- tax the VALUE ADD and not the sale $, i.e. when you buy a used car your VAT = 0 (because there is no value add) and not 8.5% of the sales price
- have exempted products of daily consumption from VAT, such as food, personal care products etc.

It is also incorrect that a tax system favoring consumption taxes levied with a VAT is easier to police. It is in fact much harder because it has to be done in person and on the ground. I have lived in such a system. The key behavior it drives is to avoid paying VAT by avoiding the transaction on the books of a business. This creates a huge black market and bartering system for all Services that can be provided person to person. And a whole rathole of laws dealing with when it is lawful to provide a service to another person for free. For example my brother and my uncle as electricians are allowed to fix a problem in my house in their free time but my cousin could be prosecuted for tax evasion.

It it is a particular source of pride for each homeowner when he can say that he has not paid once cent of VAT for his entire house because each service was provided as a “personal favor”. In fact it has become so much of an obsession that it rivals football as the national sport. Of course, you have a huge army of tax and customs people policing people’s homes and builder’s construction sites after hours to make sure that all people working there are really blood relatives of the property owners.

The good thing in that is that it provides a huge opportunity for people to bond an nourish their relationships and build community. Nevertheless I am really skeptical the people in this country would easily and readily adapt to that.

Posted by Don Camillo | Report as abusive

Not surprising suggestion coming from a right-wing Bloomberg media type. The drumbeat by the rich to shift more and more of the tax burden onto the middle class and working poor continues. The rich already pay far less as a percentage of income in total taxes (property, income, sales, etc and hidden taxes) than do everyone else despite the false propaganda put out by right-wing media types. A lot of people are fooled or choose to believe the propaganda because its what they want to hear.

Posted by Tony R | Report as abusive

The people who will attempt to cheat the VAT system are the same people who attempt to cheat now. The landscaper who does not report all his yards for instance. If you don’t report transactions, you can cheat either system (unless you get caught). Although the landscaper would still be paying into VAT when he buys gas or work gloves or a lawn mower.

Drug Dealers, illegal aliens, and prostitutes who cheat the current income tax system might not charge VAT for their illegal services but they would pay VAT on a big screen TV at Best Buy and shampoo at Wal-mart and a box of cereal at the grocery store.

Those IRS agents would be freed up to enforce VAT (on the ground) if we got rid of the 10% and 15% brackets. 60% of the population could use the 1040-EZ form. More individualized IRS attention on businesses.

The same people who barter away services can do that under the current system. The truth is that these multi-national corporations and retail stores are not going to jeopardize their livelihoods over this tax that is passed on to the customers.

The importers and outsourcers are getting a free ride.

Posted by Chris Sherritt | Report as abusive

Whenever there is a tax there will be a inefficient way of redistribution of wealth to the rich and what it becomes waste. No VAT and by the way get rid of government guarantee pension. Get rid of worker union.

Posted by seekingworldlywisdom | Report as abusive

Reply to Aleks
Running a small business in the UK I understand very well how VAT works and I agree with much of what you say in both your major posts. The only further point I’d like to make is that I love your taxes, whenever I come to New York I buy as much camera gear as my wife lets me, safe in the knowledge that the great American tax payer is subsidising me way more than s/he realises. Now go do the math, as I thing you say.

Posted by Clive S | Report as abusive

Ever hear of the Fair Tax, sponsored by hundreds of U.S. Congressmen? Duh.

For some reason we can’t get the democrats off their rears to support it even though it exempts the poor from paying sales tax.

Posted by Bryan | Report as abusive

The FairTax would reduce taxes on the poor and raise them on the middle class. A huge tax cut would go to the super-rich (millionaires and billionaires). These people make are overpaid already.

I bet if someone supported a half Fairtax. Say a 15% exclusive rate (or 11.5% inclusive) that replaces the payroll taxes and corporate taxes but not the income tax. The Democrats would support it.

It is also very difficult to enforce a FairTax. A VAT is harder to cheat at because it requires collusion from raw material suppliers and manufacturers/wholesalers and retailers. One business can only cheat on their added value. They can’t get the rebate on the previous added value if they don’t claim their own. Not only that but their purchases would reveal if they were cheating.

Another overlooked option in all this would be a tarrif.It worked well for the first 120 years of the country. We could replace the payroll tax with a 50% tarrif. Could other countries retaliate? Sure. But the demand curve for the things that we export is very inelastic. Food and weapons and scrap metal are viewed as necessities and a tarrif would not hurt these 3 major exports at all. Plus workers would get a 7.65% pay raise and employers would get a 7.65% tax cut when they use labor.

90% of our economy is domestic – only 10% is exports. Our trade deficit is about 90% of our problem.

Posted by Chris in KY | Report as abusive

Christopher Swann is right.

Money should be out of the hands of ordinary citizens and in the hands of government, banks and insurance companies, who know best how to manage them.

Posted by Drew | Report as abusive

I just can’t understand how replacing a 9% sales tax with a 23% (which is really 30% or more) “Fair Tax” or a similar VAT makes any sense.

Since poor people spend all their income on consumption, this seems like a terribly regressive burden. Rich people have some to save. Since 50% of consumption is done by the top 20% of incomes, wouldn’t such a burdensome tax reduce their demand and shrink the economy even more?

Also, this discourages saving, since my lifetime of saving after-tax money means that I would be heavily taxed on consumption when I actually do spend this money in my old age. How’s that for double taxation? No, thanks.

This is the worst idea imaginable.

Posted by Laocoon | Report as abusive

The currently high US Federal Deficit was cause by WallStreet. Let them pay for it by charging a tax on all financial transactions(Tobin Tax). The VAT tax is a non-starter, there is no way the states are going to allow the Federal government to muzzle in on this tax by competing with the state sales tax. The states have their deficits to pay off too!

Posted by DR | Report as abusive

Any tax, which yields more money for government, will in turn, provide more resources to a government, which will use these resources to create more taxes. Like an obese person, the government should be on a high protein diet and weaned off other people’s money – our money.

P.S. Why do I feel I’m helping Reuters staff to produce more of this drivel?

Posted by Drew | Report as abusive

Reply to Laocoon.
You’re right that saving under a high income tax regime and spending under a high comsumer tax regime is not a good deal. This is a transitional problem which needs to be addressed through interim tax allowances but it should also be be remembered that retirees and the poorer sections of society spend a higher proportion of their income on food and other essentials. In most countries operating VAT these goods are zero rated, i.e. no tax is payable.
VAT is a replacement for Sales Tax and a slice of Income Tax. It moves spending power from Government to people, if you’re having a difficult month not spending means not paying taxes unlike Income Tax which comes off whatever your problems. If government sees VAT income reducing they have to sit up and think because that means something is happening in the real economy. If income tax reduces who knows until its too late. My politics are old fashioned Reagan and Thatcher believe me VAT is not a socialist conspiracy.

Posted by Clive S | Report as abusive

A new tax?! Are you fucking kidding?! How about cut out wastefull spending of the taxes we already pay too much of!Anyone making more than 200,000 a year needs to be fired. too many people make way more than they need while doing nothing….. A new tax!? How about a new Country,,, that is why the US was started in the first place,,to get away from over taxation and being told what to think and believe… What the fuck happened?!?!?!

Posted by Mark | Report as abusive

And just for the record,,I rent,,and do not even make 35,000 a year.. Value Added Tax? What exactly does that load of horseshit mean? And look at social security,,that was supposed to be for the people who worked, for their retirement,,but it has been taken from, and abused by the government…… I want my SS back!! All I have paid in from my paychecks,,I want it in one lump sum,,it was money I worked for,,but the US Gov. stole.. Thieves!!!!!

Posted by Mark | Report as abusive

“The cell phone working” …

Now that’s funny!
(Laughing to hard…can’t type).

Posted by weezer | Report as abusive

What a minute, is this instead of the income tax or along with the income tax? If it’s instead of, I’d say it sounds great. If it’s in addition to, I’d ask if these people are nuts? The American people are overtaxed as it is. Adding more taxes is just going to push us from recession to depression.

Posted by Frank | Report as abusive

If the US issues a VAT then it also needs to do away with income tax. It also needs to do away with all of it’s very poorly run programs and instead take a position of referee.

That is to say that rather than actually running programs like education and medical programs, and housing programs etc.. It needs to institute a financial social safety net which distributes assistance payments to the citizenry. It would be much like continuously receiving stimulus payments. They wouldn’t amount to very much for each household, but it would serve to smooth things over during difficult times.

Then the government simply needs to uphold standards of ethical business practices, and the rule of law. And in all law it is the citizen that must come first. No more special interest groups. EVERYONE has the same rights. Gay, straight, man, or woman, it doesn’t matter. All citizens have the same rights to life liberty and pursuit of happiness.

On the surface this may seem like it would be very expensive. But in actuality it would cost much less than what the government currently pays for corporate welfare and the administration of its entitlement programs. With what our war is costing us alone this plan could be easily carried out for decades.

The advantage of putting money directly into the hands of the citizenry is that they will be encouraged to consume, pay bills, choose their own medical care, schools, etc.

Our money is backed by faith alone. If one is going to have faith in something, then that something actually has to come through in a positive way. Otherwise why would anyone have faith?

If you want the forest of American business to grow strong then the roots of that forest must have the water they need. The citizenry are the roots of American business. Capitalize the citizenry. Then even if all they do is buy cheetos with their money they will still be supporting the economy. And as long as they are capitalized they will continue to support the economy.

Posted by Benny_Acosta | Report as abusive

[...] Le Monde, 10/09/2009 ) a los rumores crecientes sobre el IVA en los Estados Unidos (fuente: Reuters , 08/09/2009 o de suba de las impuestos sobre la gasolina británica (fuente: Sunday Express, [...]

[...] than a dozen programs since Volcker’s speech. But some print and online news media, including Reuter’s columnist Christopher Swann and Fortune’s Shawn Tully, actually promoted the idea of a [...]

[...] than a dozen programs since Volcker’s speech. But some print and online news media, including Reuter’s columnist Christopher Swann and Fortune’s Shawn Tully, actually promoted the idea of a [...]

[...] than a dozen programs since Volcker”s speech. But some print and online news media, including Reuter”s columnist Christopher Swann and Fortune”s Shawn Tully, actually promoted the idea of a [...]

[...] than a dozen programs since Volcker’s speech. But some print and online news media, including Reuter’s columnist Christopher Swann and Fortune’s Shawn Tully, actually promoted the idea of a [...]

VAT is important because it offers a restriction to the prices of products. It there was no VAT applied, then it may lead to price rise. So a certain amount of money is to be paid to the government in the name of VAT. For more information on VAT – especially the new EU VAT change to the place of supply for electronic services – just visit http://www.taxamo.com/

Posted by Markerden | Report as abusive

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