The Dangers of a Value-Added Tax
15th October 2009
A VAT is by its nature hidden, because no one files a tax return.
The VAT is so slippery that academics here and abroad do not agree on who pays this seemingly magical tax. Some economists still deceive themselves with the old notion that a VAT is simply a tax on consumers. This misperception comes from the European VAT, which uses a system of credits to create the illusion of pushing the tax forward from one business to another and finally to consumers.
The one certainty about a VAT is its enormous revenue-producing potential. At a rate of 17% to 18%—about average for Europe—it could increase total federal taxes to 30% of GDP or more from 15% now, according to the Congressional Budget Office. In combination with higher federal spending, this could forever alter the balance between the public and private sectors.