Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.
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“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.”A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American — a tangible benefit that would be highly valuable to low-income families.
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The VAT has advantages: Because producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT, the tax is hard to dodge. It punishes spending rather than savings, which the administration hopes to encourage. And the threat of a VAT could pull the country out of recession, some economists argue, by hurrying consumers to the mall before the tax hits.
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What would it cost? Emanuel argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments. In his 2008 book, “100 Million Unnecessary Returns,” Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise enough money to exempt families earning less than $100,000 — about 90 percent of households — from the income tax and would lower rates for everyone else.
And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation’s debt would stabilize and everybody could see a doctor.
Sounds like it will cure blindness, get my sheets whiter than white and make me a hit with the ladies! What can’t a VAT do? If it’s this good, why not go all the way and make it 100% so the government can do everything for us?
When you think about it, a 100% VAT is the simplest of all. Just double the sticker price. Simple. Piece of cake. Easy as pie. That will get us out of financial woes in just a few months.
# 18 Mike said, “I think a VAT is a bad idea, but a national sales tax would be a great idea, especially if they got rid of the IRS. ”
True, VAT is fairly destructive compared to a sales tax.
Seems like a fairer tax than income tax and property taxes, at least it makes EVERYONE pay tax even the deadbeats.
When we first started paying VAT here in Spain I hated it. 16% doesn’t sound bad till you want to buy a car or a house. But the money didn’t go to healthcare, here they took an ugly post industrial city and polished it like a gem, suddenly we got a thriving service industry thanks to tourism. OTH the economy was quite healthy when the VAT began (a prerequisite). This is a desperate move in the middle of a crisis which seems more a way of financing social programs than fixing the economic problems. The problem is the money has got to flow. Money flows from the top down. Those at the top are still waiting. Target taxes to those large pools of stagnant money and your problem’s are over.
#17 One thing you’re forgetting is that SS was sold to the people as insurance and that we’re paying a premium. If that’s the case then it doesn’t make sense to have an open ended premium that you’re forced to pay (remember the Amish don’t pay to SSN, they don’t believe in insurance and got a pass from FDR). It also doesn’t make sense for some people to pay no premium but get a benefit.
On the other hand a lot of things about government programs don’t make sense so I’m sure that none of this will get in the way of politicians spending our money. For instance, SS revenue was several billions over what was paid out, cool. So, the government took that extra money and used it to fund other existing programs. But don’t worry, you’re premiums are safe, they replaced that money with government bonds so that it can get paid back later. That’s right kids, the government takes in $100, spends $70 on SS, borrows and spends $30 on other things, creates a bond for $30 so that it can remember to tax you again for that $30 later.
So now they want a VAT. I can’t wait to hear the brilliant ideas they have to manufacture more money they will take from us.
# 24 amodedoma said, “When we first started paying VAT here in Spain I hated it.”
When did Spain get a VAT?
This proposal doesn’t go far enough. What SHOULD happen is the “Fair Tax”: a consumption tax that replaces income tax, death taxes, FICA, corportate tax and a few others. Implemented properly, it’s revenue neutral, but makes sure that everyone pays taxes. See “The Fair Tax Book” by Boortz and Linder.
This will never happen. Democrats talk shit all the time about helping the ‘poor” but the Democrats will never support paying this much in additional taxes.
VAT or GST, are always heralded with promises which are then ignored and forgotten. Wherever it has been implementated in the world it has not improved matters. Siphoning, skimming, shaving – reduces government to pimping for it’s survival.
Why do most tax plans assume the same level of spending as before the tax? Eventually, the tax causes decreased spending on the item taxed. Ultimately, people find a cheaper alternative. With a VAT tax, overall spending would go down, and government services would suffer, but, maybe as a side effect, personal savings might actually go up.
A VAT or a Flat Tax, okay by me. I’m afraid the IRS and tax attorneys would start to scream and since they have so many supporters in the congress…
I prefer a VAT. If I choose to eat prime rib instead of hamburger, I get to pay for the privilege. A 25% VAT seems high to me but I end up paying more than that in income taxes. That bathroom remodel used as an illustration is an increase of $1,250 but, at 30% income tax, you would have paid $1,500 so a 25% VAT would have saved you $250 buck on the remodel.
If you’re working at McD’s for minimum wage, chances are you’re not going to have a five grand bathroom remodel. You’ll run down to Home Base and by a couple of washers for your leaking faucets. That doesn’t sound regressive to me. Sounds like if you can afford to buy more, then you can afford to pay more.
Any surplus would surly be pissed away from the crooks in Washington. We would still have a trillion dollar deficit and would be paying $20 for a cup of coffee. Welcome to new Democratic order.
So long as we can pay for things with cash or barter then fuck’em. Take the things you want to buy into the underground economy. At least you can save enough to be able to afford things you want and do have to pay taxes on.
Work off the books so you don’t pay income tax.
Of course I would never do anything like this and I pay all my taxes. Just thinking outloud..
FairTax has been mentioned and it’s a good solution IF it were accompanied by a Constitutional Amendment banning income taxes. Otherwise, it’s just piling on.
Somebody should just slap that Kent Conrad silly. A VAT will be eventually enacted in the U.S. & of course it will suck & not solve anything. Too predictable.
#30 – Angus,
Why does most tax plans assume the same level of spending as before the tax? Eventually, the tax causes decreased spending on the item taxed. Ultimately, people find a cheaper alternative. With a VAT tax, overall spending would go down, and government services would suffer, but, maybe as a side effect, personal savings might actually go up.
As I said earlier, taxing consumption would be a good thing precisely because it reduces consumerism. Consumerism as if it were a religion in this country has become a serious problem, both for sustainability reasons and because it has left people going broke on the “whoever dies with the most toys wins” failed philosophy.
Further, another slight side effect of the VAT might be to reduce our horrifically wasteful packaging. Those who sell all of the plastic and other packing materials would have to charge a VAT. Products could be made cheaper simply by reducing packing materials.
I’m starting to like the sound of this.
I am surprised though that I don’t see any reference to any country anywhere making the tax graduated and higher on luxury items than on necessities. I would exempt basics such as milk, eggs, etc. I would make the tax higher on expensive items such as $100+ bottles of wine, $30K+ cars, etc. This way the tax would be less regressive.
No. I have not thought out the mechanism for doing so and do not know exactly where to draw the lines for luxury tax. Perhaps $18/lb specialty cheeses would be taxed higher than $5/lb cheddar. Who knows? We can work on the details once we decide on a philosophy.
Would anyone have a problem with it being a bit more progressive on luxury items? If so, why?
Presumably, we would have to determine at what point in the manufacture something goes from just being a bolt to being a bolt that holds a Naggravator engine in place. Or, perhaps not. Perhaps the bolt is a bolt. When it is used on a luxury car, that use is its value add.
#30, “Why do most tax plans assume the same level of spending as before the tax?”
Your assumption is only strictly true assuming the existing tax regime remains intact.
If you eliminate the taxes paid along the chain from raw materials to finished goods, you will have eliminated a fairly significant cost in the production of those goods. Assuming that consumers also have knowledge of this fact, market forces should drive down the final sale price of those goods, offsetting much of the increase in the sales tax. By how much will of course vary depending on the industry and the amount of current taxes.
This is a main premise of the Fair Tax proposal. And yes, one of the advertised advantages is that personal savings rates should increase.
Less face the truth. Many people will say we need universal health coverage. When you go to deduct the cost from their personal income, they change their tune. Either way the party is over, and the tax payers will have to pay down this debt. With all the new regulation enacted, the recovery will be a slow process. Don’t expect a boom, more of a crawl.
Instituting the FairTax would be a better solution.
Don’t you believe it matey.
You have no idea of the downside of this ‘fair’ tax.
We have this in Europe.
In England it’s hated, it’s inefficient (and NOT just due to the billions of tons of paperwork and bureaucracy).
You won’t believe the fiddles that go on. Moving goods out of the country to another gets a refund. Because the paperwork and refunds are out of sync we have had billions of revenue lost to crooks (by the way it opens up crook opportunities for crooks abroad as well as the home grown kind).
This is still going on. Also. The VAT is, in Europe, different in different countries varying from 5% to over 29%. It’s a growth area for public servants of the worst kind what with its pay-it then claim-some-of-it-back ethos, then there’s the matter of unpaid VAT with the debtor vanishing.
More police work required. More on public wages, pensions.
Any one in favour of this is an idiot in denial.
Certify – or kill – all those in favour.
You are playing with a rattlesnake, believe me.