VAT in the news

The New York Times has an article devoted to a discussion of value-added taxes:

... economists across the political spectrum say a consumption tax may be inevitable once the economy fully recovers. ...

Like universal health care, every other industrialized country in the world already has a value-added tax (as do about 100 emerging countries). And also like universal health care, this once-taboo policy option has recently been invoked, at times begrudgingly, by many prominent Washingtonians, including ... two former Federal Reserve chairmen, Alan Greenspan and Paul A. Volcker....

“[Today] there are many more deductions and credits, which can often encourage inefficient behavior such as tax shelters,” said Leonard E. Burman, a public affairs professor at Syracuse University, about the changes to the tax system since the 1986 reform. “The ideal tax system has a broad base — few deductions or exemptions — and low rates.”

Most of the rest of the industrialized world — including, most recently, Australia — has already taken this lesson to heart by imposing value-added taxes. Unlike income taxes, which are often front-loaded on the rich, then subsequently diluted, a value-added tax is paid by almost everybody. That broad base is one of its major advantages, and why the International Monetary Fund frequently recommends it...

The value-added tax is also the darling of many economists for its bounce-a-quarter-off-its-abs efficiency. Its administrative costs to the government are generally low. It is also considered less of a drag on the economy over the long run than raising income taxes, which discourage people from saving money and thereby making capital available to businesses.

The article goes on to explain how a VAT would work.

For a more fulsome treatment, see this paper by the Tax Policy Center.

Unfortunately, the background to these US discussions is raising more revenue for the government, which is not what the object should be in Alberta. Revenue neutrality could and should be maintained in Alberta, and indeed the "left-leaning" Canadian Centre for Policy Alternatives says Ontario's HST is "virtually revenue neutral."

"Assertions that this is a tax grab have no foundation in reality," Lightman said.
...
"My hope would be that (this report) forces the debate away from the knee-jerk, uninformed charges we've been having towards a discussion of what is really at stake, which is a shift from income tax to consumption tax and from business to consumers."