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Why the U.S. needs a Value Added Tax
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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.
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The Wall
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.
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.
No, no- just tax the richies!
How about Fair Taxes?….Uhmm too complicated for the Marxists pea sized brain…
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………..
I’m with Joel. We don’t need to pay taxes for anything.
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.
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
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.
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.
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.
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.
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!
Increase income taxes on the wealthy; a VAT will give the wealthy an unfair tax advantage.
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!
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?
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.
…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.
No Way!
VAT is no simple tax. It would pretty much require creating a new bureaucratic machine within IRS to collect this thing.
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.
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.
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.
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.
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.
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.
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.
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.
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 !
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.
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.
Also, I have a better idea. Legalize marijuana and prostitution then tax both. You’d get a better return than vats.
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.
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.
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?
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.
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.
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!
<<>>
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.
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!!!
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.
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.
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!!
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.
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.
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.
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.