Almost every major country in the world has a Value Added Tax (VAT) except the United States. (see this link for countries and rates). A VAT inherently discourages imports, while reducing the cost of a countries exports. It is easy to administer and is somewhat "self-auditing." President Trump has proposed to increase tariffs on imports, but there is a fear that selective tariffs could trigger a devastating trade war. If, however, the US, as part of a tax overhaul, added a VAT tax while reducing personal and corporate income taxes, our trading partners would be unable to claim we were unfair since they have been doing the same to us for many years. Liberals have generally fought against the idea of a VAT because they are concerned that a VAT will tax lower income citizens at a higher percentage of their income than richer citizens. However, if a VAT were implemented at the same time personal income taxes were decreased (and maybe earned income credit increased) the effect of the VAT on lower income groups would be neutralized. If we plan a Government revenue-neutral tax reform, adding VAT and reducing corporate income taxes, corporate income "stranded" overseas may be repatriated to the US.
There are other advantages of VAT other than international trade:
There are other advantages of VAT other than international trade:
- By increasing prices, it tends to discourage consumption and encourage saving.
- It taxes the underground economy which could be as large as $2 Trillion or 12% of US GDP, Drug dealers and prostitutes don't pay income taxes, but everyone has to buy stuff.
- The huge baby boom demographic is retiring. The ratio of tax-paying workers to retirees is falling. By taxing consumption, we reduce the burden on workers.
I wrote Senator Dianne Feinstein, Senator Kamala Harris and Congressman Darrell Issa the above suggestion.
