NCPA - National Center for Policy Analysis


April 19, 2010

A value-added tax, or VAT, will be rationalized as necessary to restore fiscal equilibrium.  But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government, says columnist George F. Will. 

A VAT is collected on value added at stages during the process of production, but most of its burden is borne by consumers.  They file no VAT returns, so its stealthiness delights the political class, which can increase it in small, barely noticed increments, with every percentage point yielding another $100 billion, says Will. 

Although the nation's welfare often varies inversely with that of the political class, a VAT would ameliorate a real problem, says Will: 

  • Americans consume too much and save too little.
  • Furthermore, today's baroque tax code drives economic distortions and enables corruptions. 

Corporations do not pay taxes, they collect them, passing the burden to consumers as a cost of production.  And corporate taxation is a feast of rent-seeking -- a cornucopia of credits, exemptions and other subsidies conferred by the political class on favored, and grateful, corporations, says Will. 

Because the income tax is not broadly based, it radiates moral hazard.  Its incentives are for perverse behavior: 

  • The top 1 percent of earners provide 40 percent of that tax's receipts.
  • The top 5 percent provide 61 percent.
  • The bottom 50 percent provide 3 percent.  

So the tax makes a substantial majority complacent about government's growth, says Will. 

Increasingly, the income tax is codified envy.  A VAT is the political class's recourse when the resources of the minority that is targeted by the envious are insufficient to finance ravenous government, says Will. 

And because the 16th Amendment will not be repealed, adoption of a VAT would proclaim the impossibility of serious spending reductions, and hence would be the obituary for the Founders' vision of limited government. 

Source: George F. Will, "Set On A VAT? Then Get Rid Of Income Tax," Investor's Business Daily, April 19, 2010. 

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