Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Cas Balicki ·
Jul 5, 2011 at 4:33pm
Below is a list of reasons to seriously consider instituting a Value Added Tax (VAT) in the United States.
- Current monetary/fiscal instability is a significant economic and security threat to the nation
- National reluctance to cut spending programs
- Only a financial emergency will force spending cuts
- Absent such a national emergency nothing will force spending and entitlement cuts
- Apply the VAT revenue only to deficit reduction
- A VAT would allow a lowering of corporate taxes that currently hamper business expansion and the repatriation of international profits
- Everybody pays the VAT, which ends the favouritism implicit in income taxation
- A VAT would end the hash legislators have made of allowable deductions and special interest group privileges, the stock and trade of Washington
- A VAT would end the uncertainty that stems from anticipated/future tax policy that currently hampers investment
- The current tax system is beyond complicated and actually hampers industry by being too expensive to comply with
- The current tax system no longer provides sufficient income for the government to function and even after program and entitlement cuts will likely not furnish sufficient revenue to support the national government
- An easily understood VAT is not a job killer as are income and other taxes, especially hidden taxes
- A VAT is an obvious tax, which makes governments reluctant to raise it, thus forcing government to live within its means
- Over the last few decades government deficits have grown even in good economic times, which belies the notion that the current deficit is temporary
- Constant government expansion and ever growing deficits put increasing pressure on interest rates and impede capital formation thus penalizing investment leading to the malaise of perpetually weak economic performance
- A VAT by taxing all aspects of production at the same rate does not favour labour intensive production at the expense of capital intensive production thus rendering taxation fairer over the whole spectrum of industries
- Because corporations are taxed uniformly over the entire spectrum of production they can focus on the most efficient systems of production as opposed to concentrating on taxation skewed efficiencies, which in the long run turn into inefficiencies
- Corporate taxes tend to render capital more expensive and labour less expensive, which skews production to labour
- The inefficient use of inputs penalizes society as a whole in that it reduces overall output rendering that output dearer than it should be
- Currently the US faces a balance of payments disadvantage from nations that have a VAT tax as the price of goods made for export by such nations is reduced by the amount of the VAT whereas all the taxes included in the price of US goods made for export is carried in the price as a factor of production
- Weak economies produce lower revenues for government and higher spending commitments which prolongs recessionary periods and delays recovery—a VAT would stabilize the government sector thereby shortening recessionary periods
If I have time today I will try to summarize the arguments against a VAT, which I have started, but have not taken very far as of this writing.
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Comments :
Jun '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
I assume you propose to replace the tax on income rather than augment it? If so, I am in favor although I would prefer a point of sale tax because it is more visable than a VAT. (I disagree with the premise of #13)
I don't understand #5. All government revenue is fungible is it not? Am I looking at this correctly?
May '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Canadian decides US needs a VAT. Who are you? David Brooks or David "Don't call me Barbara" Frum?
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
It is largely acknowledged by conservatives and/or libertarians that consumption taxes are superior to income taxes. Consumption taxes are at least partially voluntary, they apply to everybody in the country rather than just the rich, they are visible rather than hidden, and they are much more difficult to evade.
However, acknowledging that consumption taxes are superior implies that income taxes would be replaced by consumption taxes.
Is there any evidence that this would actually happen? Do past experiences predict future success of future failure? If the United States of America instituted a national VAT, would it merely end up being an additional burden on top of all the other taxes?
To test this, I tried looking at historical Canadian income tax rates since 1991 when the federal GST was enacted. However, the byzantine annual changes to tax law, with new boutique tax credits and new boutique taxes and fees, makes it very difficult.
As such, considering how many ways a government can fiddle with the numbers to achieve a desired public relations outcome, the only way to be SURE would be to eliminate federal income tax completely and replace it whole hog with a VAT.
Good luck...
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Addendum: Here's another way to look at the Canadian experience to throw water on the idea of a VAT for the United States:
Even though virtually all Canadian conservative pundits and economists agree that consumption taxes like the GST are superior to income taxes, the Conservative Party of Canada was swept to power in part (largely?) thanks to their promise (and fulfillment) of a REDUCTION in the GST from 7% to 5%.
Conservative writers across the country published many articles saying that income tax cuts would be far superior to cuts in the GST.
The voters, however, disagreed.
Just as a VAT is more visible than an income tax, so too is a CUT to a VAT more visible than a cut to an income tax.
Furthermore, in 2006 the Liberals ran on a promise of a "Tax Shift", introducing a carbon tax and offsetting it with income tax cuts.
Voters had ZERO confidence that these corresponding income tax cuts would be permanent, if they ever materialized in the first place. The voters also had zero confidence that the Liberal Party's promise of income tax cuts would truly offset the real costs of a carbon tax.
Edited on Jul 5, 2011 at 12:56pmMay '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Misthiocracy:
In short, just as a VAT is more visible than an income tax, so too is a CUT to a VAT more visible than a cut to an income tax. · Jul 5 at 12:47pm
I had not thought about it in that way before. I think it is probably true. My wife's family is French Canadian and we visit often. It seems to me that the average Canadian pays more in total taxation than we and their overall opinion of government is no higher than ours, but I don't hear as much rhetoric of "tax the rich". Is there as much class warfare there as here and I just have missed it?
Edited on Jul 5, 2011 at 1:05pmJun '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
The headline is posed as a question EJ. I have no power to decide anything. In addition, it is my aim to summarize the arguments against a VAT later in the day if I have time.
I am painfully aware of my citizenship when I post on this site, and if you have an argument against me posting anything at Ricochet, I will respectfully entertain your position. If, however, you might think there is value in as wide a variety of viewpoints, irrespective of citizenship, then please accept my modest and quick summary of the pro position as a take-off point for your soon to be thought well constructed and well reasoned rebuttals. I await your response to any of the above.
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Southern Pessimist
Misthiocracy:
In short, just as a VAT is more visible than an income tax, so too is a CUT to a VAT more visible than a cut to an income tax. · Jul 5 at 12:47pm
I had not thought about it in that way before. I think it is probably true. My wife's family is French Canadian and we visit often. It seems to me that the average Canadian pays more in total taxation than we and their overall opinion of government is no higher than ours, but but I don't hear as much rhetoric of "tax the rich". Is there as much class warfare there as here and I just have missed it? · Jul 5 at 1:01pm
No, not "the rich" per se.
Rather the clarion call on the left is to tax "the corporations".
After all, "the rich" are mostly government employees, while everybody knows that "the corporations" are all run by evil, greedy Americans. ;-)
May '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Misthiocracy
Rather the clarion call on the left is to tax "the corporations".
After all, "the rich" are mostly government employees, while everybody knows that "the corporations" are all run by evil, greedy Americans. ;-) · Jul 5 at 1:08pm
Yes, I can see that but it is an ironically futile way of thinking isn't it? In terms of taxation, corporations are merely tax collectors, not payors. The taxes are passed on to the buyer who than adds on a VAT.
May '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
No, Cas. We all love you. My dig was at the Davids (Brooks and Frum). Especially since the conversation du jour* was Brooks' column in The Times this morning. The Davids understand conservatism through their Canadian roots.
You are demonstrably to the right of Mr. Harper and most of the Canadian Conservative Party. (And if that is a mischaracterization, let me know.)
My problem with these tax discussions is that the US tax code is not about revenue and has not been for many years. It is about social engineering, rewarding one's friends, punishing one's enemies and buying votes. Until that changes the discussion is fruitless.
*Arbitrary use of French to show my sensitivity to the population of Quebec.
Edited on Jul 5, 2011 at 1:41pmApr '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
the basic premise is wrong. We don't need a more effective or palatable tax system. We need a more effective and palatable federal government. That government should be small enough and efficient enough to operate on a budget derived entirely from the sale of Washington Monument figurines and "Founding Fathers" calendars.
May '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Although almost everybody pays payroll taxes (with direct deposit I never notice how much I'm forking over anymore) over 50% of Americans don't pay income tax. I like the VAT tax because it gives everybody skin the game. I think it would psychologically alter how the average citizen views government spending. Hopefully it would create more scrutiny how our government spends our "bleeping" money. Government spending is more of an abstraction to most Americans than a reality.
May '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Founding Father action figures would make a ton of bank. Especially if they all had superpowers. Kung Fu grip John Adams. Laser eyed Ben Franklin. John Hancock would have the ability to write his name really large. He'd be the Aquaman of the founding fathers.
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Once again, Canuckistan has beaten you to the punchline. ;-)
May '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Misthiocracy
Once again, Canuckistan has beaten you to the punchline. ;-) · Jul 5 at 2:50pm
But none of them have superpowers! Canadians are too humble.
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
thelonious
Misthiocracy
Once again, Canuckistan has beaten you to the punchline. ;-) · Jul 5 at 2:50pm
But none of them have superpowers! Canadians are too humble. · Jul 5 at 3:01pm
Not true. Sir John A. Macdonald's tolerance for alcohol was clearly superhuman!
;-)
Aug '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Creative taxation is a subset of creative government: always bad.
I think the tax code we got is the tax code we want. I think if the U.S. personal income tax were simplified in any big way, I mean an eliminate-lines-from-Form-1040 way, it would meet with loud objections, starting, oh, about the first week of next February, when people get their W-2's. "I can't deduct my kids anymore?" "I can't deduct my IRA anymore?" "I can't deduct my mortgage interest anymore?" Plaints like that.
With the exception of Alt-Min, everything complicated about Form 1040 is there to save you money, or (in the case of EIC) give you money.But back to the VAT idea, if implemented, I'd bet it's a planet-wide computer-administered version of Form 720. Oh, I see "Bows and arrows" is now extended to "quivers"! No surprise,though, for this also I see: every sale with its own tax rate, possibly depending not just on what is sold but the age, sex, color, you-name-it of who is buying.
Jul '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
VAT is a stealth tax and subject to all kinds of mischievous manipulation.
I favor a sales tax; it's easy to understand and I can at least choose to deny my dollars to government by restricting my spending.
Apr '11
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
It will never be used as an alternative to an income tax so this idea is a nonstarter with me.
Income tax must be repealed for anyone but a starry-eyed liberal to like a consumption tax.
Jun '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
Kenneth: VAT is a stealth tax and subject to all kinds of mischievous manipulation.
I favor a sales tax; it's easy to understand and I can at least choose to deny my dollars to government by restricting my spending. · Jul 5 at 4:38pm
I agree. Taxes should not be hidden in the sales price, but should be set out on a separate line that clearly designates it for what it is.
I agree with others on this thread that if we move to a national tax like this it must be part of the same deal that reduces other federal taxes (preferably some combination of corporate and personal income taxes and capital gains taxes).
I recognize that we're unlikely to ever ("ever" being defined by however long I'm around to care) kill the income tax. In a gesture to political reality, I'm willing to concede that there will be a lower tax on low earners that moves into a higher tax rate, but there should be no more than two rates (and, yes, I'm willing to get rid of most deductions).
Cas: Great issue to raise.
May '10
Re: Is It Time to Introduce a National Sales/Value-added Tax in the U.S.?
5. Apply the VAT revenue only to deficit reduction
Which part of the budget is "deficit reduction" again?
By definition, all taxes and all spending cuts are applied to the deficit. The deficit is the difference between total revenue and total spending.