Value Added Taxes Essay

1063 words - 5 pages

Value Added Taxes
A value-added tax (VAT) is a fee that is assessed against businesses by a government at various points in the production of goods or services, usually any time a product is resold or value is added to it. For tax purposes, value is added whenever the value of a product increases as a result of the application of a company's factors of production, such as labor and equipment. With VAT, the taxable amount is based on the value added at each stage of the process of producing goods and bringing them to market. By imposing a tax on receipts but then allowing a credit for VAT taxes collected at earlier stages of production, the credit-invoice VAT taxes the “value added” by each ...view middle of the document...

On the other hand, opponents argue that VAT would be more complicated to implement than other tax-reform options, such as a national sales tax. They also worry that it would increase the cost of food, medicine, and other necessities, which would hurt the poor. A value-added tax has a flat tax rate rather a progressive one. In general terms, a VAT on all consumption expenditures, with a single rate that is constant over time, would be relatively neutral compared to other major revenue sources (Mitchell).
As mentioned above, America is one of the few nations without a value-added tax (VAT), but there is growing pressure to impose the levy. Some like the VAT because it offers a new way to finance bigger government. Others like the VAT because compared to the income tax; it does not impose as much damage on the economy. Some want to use the revenues from a VAT to facilitate tax reform and Social Security reform. There are even some people who believe that a VAT will somehow reduce the trade deficit. However, many people dislike the VAT, often for some of the reasons listed above. Supporters of limited government oppose the tax because it makes it easier for politicians to expand the size of government. By contrast, some on the left oppose the VAT because of its one redeeming feature, it is a consumption-based levy and therefore not as easy to use for economically destructive income redistribution. Although it is a relatively non-destructive way to collect revenue, a VAT would be a serious mistake for the United States. The only condition that would make a VAT acceptable is complete repeal of all income taxes and a constitutional amendment that prohibits Congress from re-imposing taxes on any type of income. But this is not a realistic option, which is why the VAT should be stopped (Michell).

Many experts believe that some of the negative effects of VAT would be:

Expanding the cost of government. Countries with VATs have a much heavier total tax burden than those without VATs. Before the creation of VATs, the burden...

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