A Value Added Tax Would Decrease U.S. Competitiveness
By Anthony Lizan • Monday, May 17, 2010 1:01 pm
Proponents of the VAT have been lauding its alleged benefits in the news lately. A commonly repeated claim is that U.S. competiveness would increase, because it would lower or replace taxes in other areas. Bill Clinton went as far to say,
“I think they ought to look at a progressive value-added tax, just because — and I think it's important the American people understand this — most of our competitors have tax systems like this…If you have a value-added tax ... you lower the income taxes, corporate and personal, …Such a tax would be "not easily evadable" and would make the U.S. more competitive…” (Emphasis added)
However, even a cursory look at our competitors’ tax trends disproves President Clinton’s statement. According to Dan Mitchell of the Cato Institute, most of our competitors did not replace other taxes or lower taxes as a share of GDP after a VAT implementation. In fact, most of our competitors raised taxes, which made them less competitive, not more. Take Greece for example. They enacted a VAT in 1997, and no one can seriously claim that they are better off because of it. Establishing a VAT in the U.S. would hurt our standing worldwide by further destabilizing an already fragile economic period. Of the 29 countries that comprise the OECD, the U.S. is the only member without a VAT. Let’s keep it that way.
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The problem here is that they're talking about the VAT as an addition to our current tax code, not as a replacement. Clinton is being deceitful if he is really trying to convince people that a VAT would lower the overall tax burden. What we need is fundamental tax reform that replaces the entire tax code with something simple, efficient, and low.
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