A VAT is a Flat Tax Too

Reader comment on: AEI Versus the Flat Tax

Submitted by Eugene Patrick Devany (United States), May 28, 2013 17:48

It is not clear why tax revenue should be fixed at 18.5% of GDP or even if it really is. If one ignores the $1.2 trillion in tax expenditures which amount to 7.5% of GDP (as the federal budget does) than 18.5% may be close to what is doable (because the feds can always transfer programs to the states).. AEI should admit that circumstances change and each new congress and president should be free to act or not act as they deem proper. This is not to say that good tax reform should be ignored.

It is arrogant for the authors of the new 568 page Joint Committee report to all but ignore a value added tax (VAT) that has been considered and adopted in every developed country in the world.

A value added tax (VAT) has no impact on consumer prices when implemented in a revenue neutral manner and is the fairest way to apportion taxes among businesses and across taxing jurisdictions. Using revenue from a VAT to reduce the business portion of the payroll taxes (about $400 billion) would make U.S. labor less expensive. The labor intensive pass-through businesses (touted as America's "job creators") would gain some tax benefit versus larger corporations that earn most of their profits from products with value from patents and copyrights.

Under scrutiny all tax expenditures are harmful because they increase tax rates by $1.2 trillion (7.5% of GDP) but some tax expenditures are particularly harmful because they also hinder U.S. jobs.

• Lower taxes for secure savings (i.e. interest from bonds, CD's, foreign bank accounts, etc.) discourage risk in job creating businesses by making it relatively more profitable to play it safe.

• Tax deferrals for profits from foreign subsidiaries keep almost $2 trillion from being repatriated and invested in the U.S.

• The charitable deduction destroys private sector jobs by giving $50 billion to wealthy individuals to induce them to take hundreds of billions invested in business and give it to very wealthy public charities.

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Other reader comments on this item

Title	By	Date
Well the first point suggest the need for transition rules: [91 words]	Lyle	May 28, 2013 18:25
⇒ A VAT is a Flat Tax Too [334 words]	Eugene Patrick Devany	May 28, 2013 17:48
↔ Actually the cited secure savings pay the higher rates. [37 words]	Lyle	May 28, 2013 23:56

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