For your holiday reading enjoyment, here is a great paper on the Value-Added Tax (VAT) by our friend Curtis Dubay, Senior Tax Policy Analyst at the Heritage Foundation. The paper comes on the brink of a new Congress and amidst continued rumors of a VAT being proposed as a solution to our nation’s economic woes.
We’ve written on the VAT before, but allow me to recap:
A VAT is a type of national sales tax levied on the "value added" to goods and services as they pass through each stage of the production process. While a VAT is a fixed percent of the final price, just like a retail sales tax, it differs from the current system because the cost of a VAT to consumers would be hidden. You, the buyer, would be unable to differentiate between the price of a good and the amount you are paying for its tax. Furthermore, the VAT would lead to even bigger government (if you can imagine), as we see in Europe, and increase potential for special exemptions and hidden tax breaks by well-connected industry lobbyists.
NTU supports other consumption-based, national sales tax efforts - such as the FairTax - that would generate faster revenue growth and spending restraint, but we do not support a levy imposed on top of existing burdens.
Curtis’ paper provides a detailed look into the specifics of a VAT and dispels many of the myths surrounding its debate. He calls on Congress to “…ignore misguided siren calls for a VAT and instead immediately address its spending problems.” We wholeheartedly agree and I encourage all of you to check out the paper. After all, the tax continues to loom and we could very well see some movement in the 112th Congress.