12/02/2019

Will America get a VAT sooner or later?

"Well, in the past I’ve tended to think that we ought to try to shift to an almost completely new tax system: the Bradford X-Tax, which is a novel method of taxing consumption. I still think that is an economically appealing way to raise revenue, but I’ve come to conclude that politically it’s not viable. People don’t understand it and won’t support it, so I find myself falling back on what is a very common idea, which is to introduce a value-added tax alongside the income tax. All other industrialized countries in the world use a value-added tax. It’s reasonably easy to administer, although of course, every tax has administrative problems.

It is somewhat regressive and poses somewhat larger burdens on low-income groups than on high income groups, but, as many governments around the world have discovered, there are easy ways to address that: you can give rebates at the low end or you could combine it with the income tax system scaling back the income tax to bring in the VAT alongside it and find a fair balance. At the moment, though, there is not much support for a value-added tax."