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Monday, April 25, 2005

Financial Times Take on a U.S. VAT

The Financial Times had an article the other day endorsing the idea of a value-added tax (VAT) for the U.S. While I would be among the first to sign up for a flat tax in the U.S., I think the FT has its rationale wrong. First, the FT makes the argument that the U.S. needs another tax and it will come in the form of higher corporate taxes or a VAT tax. With the size of our government, I would never subscribe to the theory that we need another tax.

I am among the camp that believes a VAT should only be used as a replacement for existing taxes, not an addition to taxes. And I have zero confidence that this would be the case. The FT contradicts itself in first claiming that the VAT really wouldn't be the "money machine" that conservatives claim, but it then goes on to say that the government-funded welfare programs in Europe were so large that they needed a new way to fund the massive budgets - hence the VAT.

Regardless of the FT's logic, I believe a VAT would be simple, efficient, and would promote savings in the U.S. I would support a VAT wholeheartedly if the government first scraps the rest of the tax code and starts from scratch. And I have a better chance of visiting Mars than that happening.