TO VAT OR NOT TO VAT, THAT IS THE QUESTION …

woman in deep thought

The Kiplinger Letter of May 21, 2010 expresses this thought provoking question by proposing the idea that …

Odds of a U.S. value-added tax are slim.  But there’s plenty of talk about it these days as a way to ease tax collection and trim the deficit.  Among others, former Fed Chairman Paul Volcker and House Speaker Nancy Pelosi say it’s worth a look.  When Obama’s deficit reduction commission reports after the elections, a VAT will be one of the options.

So, what is a VAT?  Why should we care?

A VAT is simply a type of consumption tax, levied on consumer sales and the difference between a business’s sales and its purchases of goods and services.  Typically, a business tallies the taxes due on its sales, subtracts the VAT it paid on its purchases and sends the difference to the federal government.  More than 130 countries have a VAT system in place.

Kiplinger goes on to say that it’s easier to administer and harder to cheat.  And it taxes spending rather than income, encouraging saving, investment and economic growth.  BUT, it’s a hard sell to politicians and voters.  The rate would have to be extremely high and a VAT hits low incomers hardest.  Transitioning from today’s system would be an economic and political horror.

As for an add-on VAT, a low-rate tax to generate new government revenue, it’s unlikely too.  Better odds on other tax changes, for instance, reinstatement of the estate tax.

Now it’s YOUR turn to express yourself.  Do you want a VAT or NOT?????  Would it be a blessing or bring hardship?

The difficulties, hardships and trials of life, the obstacles … are positive blessings.  They knit the muscles more firmly, and teach self-reliance. – William Mathhew