The latest Newsweek includes Keith Libbey and Evan Thomas? arguments in favor of a tax system overhaul featuring the institution of a new value-added tax.
What?s wrong with that idea? Roy Cordato is glad you asked. He outlined problems with the VAT in an article published in the latest issue of The Freeman.
?The VAT is a pernicious and insidious tax that promises to fuel dramatic growth in government,? Roy explains. Later, he tells us how he really feels:
From the perspective of the State, this is a near-perfect tax. It touches every stage in every production process, from new homes to hair cuts, and allows the government, because of the required invoices at every point, to keep track of every business?s buying and selling. For a State bent on managing the details of business, possibly to implement CO2 controls or to make sure that politically favored firms (say, unionized ones) are patronized, the information can establish a useful database.
But beyond this, the VAT would be a revenue-generating machine, unmatched by any other form of taxation. First, it guarantees that a percentage of the total value of all goods and services sold in the economy goes to the State. Nothing escapes the tax. Also, because it is levied on such a broad base, very small increases in the rate would bring in large amounts of revenue. While this is also theoretically true of a retail sales tax, the multilayered enforcement mechanism of a VAT makes it almost impossible to avoid.
