Earlier this year, Senate Democrats proposed replacing the current corporate income tax with a value-added tax (VAT). A VAT is a kind of sales tax applied at each stage of production and hidden in the prices of goods.

VATs are levied by every country in Western Europe, and there is evidence they have fueled the growth of the welfare state over the past 30 years. According to data from the Organization for Economic Cooperation and Development (OECD):

• In 1965, before adopting a VAT, total taxes as a share of GDP averaged 27.2 percent in Western Europe, compared with 23.2 percent in the United States and 25.8 percent in Australia.

• In the Western European nations that adopted a VAT, taxes as a share of GDP averaged 41.4 percent by 1993 -- an increase of 14.2 percentage points.

• By contrast, in the U. S. and Australia, neither of which has a VAT, taxes increased by 5.5 percentage points and 3.9 percentage points respectively as a share of GDP during that time.

VAT is the most efficient tax ever devised, since it doesn't discourage production as much as other taxes that raise the same revenue. It is also nearly invisible and therefore easily raised.

• The 12 OECD countries that adopted VATs before 1973 have raised their rates an average of 71 percent.

• Those countries that adopted VATs since 1985 have increased rates an average of 14 percent.

The revenues from VAT have helped expand the welfare state. In 1965, government spending as a share of gross national product in Western Europe averaged 34.5 percent; but by 1993, spending had risen to 52.1 percent. Business welfare also expanded, with industrial subsidies at least four times as high in Europe as in the U.S.

And for European workers, VAT helped create a poverty trap, as direct taxes discouraged work, and generous benefits cut the cost of not working.

Source: Bruce Bartlett, "Shadow of VATman," National Review, March 25, 1996.