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.
[…]
“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.
[…]
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.
[…]
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?
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.
# 40 Norman Speight said, “Don’t you believe it matey.
You have no idea of the downside of this ‘fair’ tax.
We have this in Europe.”
No, you don’t. VAT isn’t the same as a sales tax. You also have income taxes on top of it. EU has NOTHING like what is described at fairtax.org.
This will NEVER, EVER fly in the States.
People will riot in the streets if the prices of EVERYTHING went up by 15%.
Seriously.
How about we just spend less money?
# 42 brm said, “People will riot in the streets if the prices of EVERYTHING went up by 15%.”
Prices wouldn’t really go up on a net basis. If NO money was taken out of your paycheck, investments, etc., etc. it would be a non-issue.
The tax lawyers and tax accountants in concert with H&R Block will never let the Fair Tax happen.
OK, fun time..
Estimated amount of TAX paid in the USA after you add it all up..
sales tax, Property tax, gas tax, Tobacco tax, interstate transfer tax, import tax, Tariffs, shipping tax, phone tax, cellphone tax, the TAX companies PAY for ITSELF and employees AND UTILITES ends up being paid BY the consumer, UTILITY TAXES..
THEN understand.
that a product SHIPPED, pays Shipping tax, interstate transfer tax, Fuel tax, wages=more taxes to the employee and owners..
VAT is another word for TAX..
The main problems come with COLLECTION, which requires about 50% of the tax, and the distribution, WHERE ITS GOING…
In the USA we are at about 60% of our wages goes to TAX. we are taxes 2-3-4 times for everything.
Who needs another VAT? We have had corprate income tax for decades. It pretty much boils down the same thing. Or did some think that corperate board members, officers, and stock holders were paying it. Everyone that buys retail, wholesale or what ever, has been paying corperate taxes as well as income tax on the money that they used for the pruchase. The real kicker is that the MBFs probably mark it up when they pass it on.
nunyac
A few years ago I made $222,000. I spent about $30,000 (including food and housing), and I paid $70,000 in taxes (not including sales tax).
If you poor dumbies think a VAT is going to solve problems, then bring it on. I would have saved $70,000 and paid $7,500 in VAT.
Bring it on!
I know this is a wild idea but I’m saying it. Why doesn’t the government limit its spending to what it collects in taxes. You know set a budget and live wihtin the limits?
Nah, nobody is going to go for that in this day and age.
They are going to take it all.
#48, Why doesn’t the government limit its spending to what it collects in taxes
Read “Democracy in Deficit” by Prof. James M. Buchanan.
You can’t fight government once they have their eye on… REVENUE!!!. It’s going to happen sooner or later, and guess what?… you will all still pay income tax.
48,
then lets lower the wages in government of those making over $100,000 per year.
WOW you just pissed of all the upper positions in government..not just congress, reps, the head of the VA admin, mayors and governors around the states, but a good 10% of all USA jobs from the gov.
Interesting fact.
Out of all the City/county/state/federal jobs in oregon…over HALF the people are employed but those agencies..
Any tax code that requires tens of thousands of pages of rules and regulations is unfair. A tax code that is so complex that even the tax collectors will not stand behind their advice to taxpayers, is evil. We need something new and simple. No deductions. No credits. No damned lawyers.
I need another cup of coffee. Tax included.
#53 – Alfred1,
Why not just dissolve the federation and have 54 separate nations (including Puerto Rico, Guam, Virgin Islands and D.C.)?
Personally, I’d love to see NYC secede from the nation and become like Singapore. We’ve got nothing in common with most of the rest of the country or even NYS. We could then have our own New York City passports with the New York City bird on the cover. And, the NYC bird is the bird. See Figure One.
Seriously though, if we essentially dissolve the federal government, first we must default on our $10T in debt. Then we have no military industrial complex, no social security, no education standards (oh wait … we have no education standards now), no space program, no science foundation, and probably not even enough money left to print money.
I’d rather have a flat consumption tax for all than the variable, illogical income tax we have.
As a bonus, no need to do the income tax preparation ritual every year.
#55 – Dallas,
But … that would put a whole slew of tax attorneys and tax accountants out of business!!
Where would we be without H&L Brock?
http://tinyurl.com/os58b8
#36, Would anyone have a problem with it being a bit more progressive on luxury items? If so, why?
For the same reasons that the Alternative Minimum Income Tax is so screwed up. At one time, it was for “rich” people. But because the level hasn’t been increased to keep up with the inflation of the money supply, a lot of middle class people are in danger because of it.
A $100/bottle of wine may sound good now, but in 5 years when the minimum wage is $100/hr, it won’t.
The definition of luxury is so subjective there is no way to keep it fair because everybody has their own opinion on what is considered a luxury.
Would my airplane be considered a luxury? What if I told you I had to to have it to remain competitive because it allows me to service my customers with more efficiency than my competitors? I consider it a necessity.
#42, How about we just spend less money?
[sarcasm on]
If you think I want my congresscritter doing NOTHING in Washington, DC, you are sadly mistaken.
[sarcasm off]
Actually, this is my recommendation. Stop the fracking spending, bailouts, and extortion.
#57 – LibertyLover,
Good point on making any luxury tax track inflation, which is the biggest problem with the AMT. AMT also happens to have the other misfeature of being a double tax, which is unconstitutional. By limiting deductions such as state and local income tax paid, one is indeed paying tax on the same dollar twice.
#58, And this is the problem with any kind of system based on subjective reasoning. It never goes away and always ends up worse than it started.
Theoretically, all of these systems could be described as “good” systems. Unfortunately, history has taught us the unintended consequences (or maybe they were intended that way after all . . .) of letting other people decide what is best for us usually ends up being what is best for them 🙂
Straight across the board is the only way to ensure equality.
“The Welfare of Humanity is Always the Alibi of Tyrants”
— Albert Camus