One idea circulating through the Capitol is the implementation of a national value-added tax, or VAT. This truly harmful tax would have a significant negative impact on all states, but the pain would be even greater for places like Florida.
With the federal debt now topping $14 trillion – almost 100 percent of the country’s economic output – Washington is searching the couch cushions for spare change and new sources of revenue to make it easier to balance the federal books. • One idea circulating through the Capitol is the implementation of a national value-added tax, or VAT. This truly harmful tax would have a significant negative impact on all states, but the pain would be even greater for places like Florida.
A VAT works much like a sales tax, except instead of levying a tax when a good is sold to its final user, a tax is collected on the “value added” at every stage of the production process. In theory, a VAT would have the same economic effect as a national sales tax, except that it would be more expensive and complex to administer.
One problem with a VAT is that it competes with the same sales tax base that states rely on for much of their revenue. As a result, states will take in less revenue through their sales taxes.
Indeed, Florida would be one of the states hardest hit by a national VAT. As one of just a handful of states that do not levy personal income taxes, Florida relies on sales tax revenue for about 60 percent of total revenue – almost double the national average. Only Tennessee and Washington rely more heavily on sales tax revenue than Florida.
Because taxes discourage consumers from spending money by raising the costs of products, even at a modest rate a VAT would reduce consumption and hence sales tax collections in Florida. Consumers and businesses alike would immediately lose out. This is the same logic by which public health advocates, for instance, have called for sharply higher cigarette taxes in the previous decade: taxing a product reduces its consumption.
– See more at: http://www.jamesmadison.org/issues/2010-december-federal-vat-would-be-bad-for-florida.html#sthash.h0wGia1U.dpuf
