No. of Recommendations: 25
Is your understanding that federal level national VAT a complement or a replacement for the income tax?
Most countries have both, so that would be my assumption. Monaco is an outlier in that respect, along with about 16 other places that are pretty small. I mention it only in the context of showing that you can collect a remarkable amount of money with a VAT without breaking an economy.
The point is that if you're going to have a country that spends X% of GDP each year - decent services, military, whatever - then you really ought to have a tax system of collecting approximately X% without causing massive distortions and breaking things around the edge cases. The current US tax system doesn't manage this. History seems to show that value added taxes meet that test, at least in fairly prosperous places. It might not work in Congo.
Some folks in the US are of the "starve the beast" persuasion, and would not like the idea--they think there is more than enough spending to cut and that tax collection is therefore sufficient. Personally I find the suggested cut lists less than convincing and the motives more about their own tax bills, but opinions differ. Thus if I were emperor briefly, I'd do this as a compromise: the national sales tax is set each two years at a rate that collects enough money in the next year to cover 95% of the average annual deficit of the previous 3-5 years. If spending cuts work and are sufficient to basically wipe out the deficits, then no national sales tax--they should be happy. If deficits get to be a problem, the sales tax rule automatically makes the problem go away in the manner that hurts things the least. Once the bookkeeping is set up to collect and remit a sales tax, which is admittedly a pain, an occasional change in rates at year end is surprisingly simple to handle.
One side effect is that something like a "temporary" cut to income tax rates or some other big and unfunded populist give-away would show up pretty rapidly as very visible rises in the sales tax rate. It might be good for people to notice that there is no such thing as a free lunch, and politicians would see them noticing. Kicking the can down the road wouldn't work as well as it currently does.
Jim
