Friday, June 05, 2009

Is a Value-Added Tax the Answer?

Let’s be honest, the economy is on shaky ground. All these hopes for financial recovery are slow to manifest themselves, and our nation is sliding quickly into debt. How can we stop this tailspin? The same way you get your own personal finances back on track. You reduce how much you spend, and you try to increase the amount of money you earn, right? When we are talking about our federal government, that means we either reduce the amount of money we spend on services (e.g. military, Medicare, and all those other public services that keep our society functioning) or we increase the amount of money the government takes in, by way of taxes. Neither of these sounds pleasant.

Frankly, with so many people out of work and suffering, cutting funding to all those services that are helping those in need will intensify the economic recession. On the other hand, how much more in taxes can we really afford to pay? What is left to tax?

This is where the discussion of a Value Added Tax (VAT) comes into play. This VAT would essentially be a national sales tax. While discussion of a national sales tax is certainly not new, the conversation has usually revolved around using the VAT as a replacement for our current income tax system. Not this time. Now, the government is talking about applying a VAT on top of our other tax burdens. Here’s why this is such a bad thing.

Any tax that is a flat percentage will always work as a regressive tax. That is, it hurts those with lower incomes much more than it does those with higher incomes. Of course, changes to the tax code could be made providing more deductions and credits for low income earners to offset the increased burden. But even this is imperfect. If someone barely making ends meet suddenly must pay 10% more on everything they buy, but will get some of it back once a year, this person will be running a deficit that will likely not be cured by their tax refund.

Not only that, but with our tax code so wildly confusing as it stands, why on earth would we do anything to make it even more complicated?

Needless to say, our government has a difficult job ahead. Somewhere they must find the funds to keep America moving forward, without taxing us all into the poorhouse.

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