Tuesday, September 08, 2009

Why the U.S. needs a Value Added Tax

A few months ago I mentioned the possibility of a Value Added Tax (VAT) being created in the U.S. to help increase Federal revenue. It looks like the issue is getting more attention, according to this new article on Reuters.com by Christopher Swann. In the article Swann suggests that a VAT could pay for health care reform, and provide enough revenue to lower tax rates across the board. Check out the text of the article below.

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.

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