Advancing a Free Society

Should the US Introduce a Value Added Tax?

Sunday, April 25, 2010

Given the current and projected large scale budget deficits of the United States, many people are advocating that the US follow the example of Europe and many other countries, and introduce a value added tax (VAT). President Obama suggested only a few days ago that a VAT for Americans is still on the table. The case for a VAT is that it is a relatively efficient tax that induces less distortion in behavior than say a progressive income tax that raises the same amount in revenue. On the other hand, once introduced the VAT almost always tends to rise over time, which increases the burden of government spending and taxation. If a country were starting a new tax system I would on the whole (I discuss my concerns later) recommend relying mainly on a VAT. However, countries like the US that already have complicated tax systems would make a mistake to simply add a VAT to the tax system without radical surgery in income and other taxes.

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