This Week’s Mtg: Do We Need a Value Added Tax?

This was Mike’s idea, in his ongoing quest to get us to compare how we do things here to other countries, especially to the EU and Nordics.  I think this seemingly obscure topic will be a great one because it matters to our current hot debate over tax fairness.  The pros and cons of a VAT can be used to illustrate key ideas about tax fairness, a major concern to all Americans these
days, whether it’s the Occupy Wall Street crowd, the Tea Partiers, or most anyone else.

I’ll spend the first 15 minutes giving some background and then ask Mike if he has any, say, 5 minutes of comments.  My opening will discuss three matters:

  1. What makes a “good” tax versus a “bad” tax?  Basic principles of public
    finance: Stability, fairness, and economic neutrality (efficiency)
  2. How does a VAT work, , who around the world uses one, and what are the pros and cons?
  3. I’ll conclude by quickly linking VAT to the larger issue of taxes being played out in national politics.  Herman Cain’s “999” notion basically would shift the entire federal tax burden to individuals, mostly as consumption (gigantic sales) taxes.  I can explain the 999 if asked, and we can discuss this and other GOP ideas to redistribute the tax burden (downward) versus liberal hopes to distribute it another way (upwards).



  1. How can we know which types of taxes we should have?  What re the principles that make a tax a “good” tax?
  2. How does a VAT work?  How could it be integrated into the U.S. tax system; i.e., what else would have to change?
  3. Does a VAT meet those criteria we want in a tax?
  4. Is moving to VAT at all politically possible?  Why/not?


—   A conservative economist destroys it. (It raises taxes on working people; lowers on rich)
—  A liberal tax and budget expert piles on.

[UPDATE:  A picture is worth a thousand etc.  This graph, from a brand new analysis of Cain’s plan, shows who would pay more and less]


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