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VAT: B⁠i⁠nge or D⁠i⁠e⁠t⁠?

By: The James Madison Institute / May 21, 2010

Blog

May 21, 2010

By Robert F. Sanchez, JMI Policy Director
An entertaining piece, “Big Brother picks your pocket,” by Miami Herald columnist Glenn Garvin makes a good point about the Value Added Tax (VAT) – a form of taxation quite common in Europe and now increasingly being discussed in the U.S. as a remedy for the federal deficit. As Garvin points out, it has a lot of appeal to politicians because it’s basically a hidden tax for which they hope they won’t get blamed.Granted, the VAT is similar to a form of taxation sometimes dubbed the “fair tax.” The “fair tax” has been advocated by some libertarians as a substitute for the personal income tax, whose maze of politically inspired deductions, credits, and exemptions requires providing the IRS with a peephole into your personal life.Moreover, as critics of the personal income tax have noted, the Left’s “soak the rich” philosophy causes successful achievers to get soaked while millions of others now get a free ride, paying no income tax at all and even getting “refunds” of money they never paid in the first place.So if VAT advocates wanted to abolish the income tax and replace it with a tax on consumption, the benefits – encouraging thrift and savings, for instance, or helping the trade deficit – might indeed outweigh the disadvantages.Unfortunately, the current VAT advocates are not urging the abolition of the personal income tax. Instead, they’d pile the VAT atop the income tax and various other federal, state, and local taxes – including the sales taxes on which most state governments rely for much of their revenue.Worse, there’s no assurance that the revenue derived from a VAT would be used for deficit reduction rather than for a further enlargement of the scope of the federal government.As time passes and concerns over the federal deficits multiply, I think we’re going to hear a lot more talk about a VAT. To appreciate its sneaky nature, read Glenn Garvin’s column at the following link: http://www.miamiherald.com/2010/05/18/v-print/1634369/big-brother-picks-your-pocket.html