Once Considered Unthinkable, U.S. (VAT) Sales Tax Gets Fresh Look

[Rudy Kohn]

AZRedhawk44, there's one in the op article:

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent.

A quick back-of-the-envelope calculation suggests I will be a little worse off (to the tune of several hundred dollars per year) with a 25% sales tax, even if I'm totally exempted from income tax.

I'd really prefer the government spend less money, rather than take more and provide services of dubious value and reliability.

[Desertdog]

A quick back-of-the-envelope calculation suggests I will be a little worse off (to the tune of several hundred dollars per year) with a 25% sales tax, even if I'm totally exempted from income tax.

VAT is not a sales tax. 

http://en.wikipedia.org/wiki/Value_added_tax
Value added tax (VAT), or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.

Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for 52% of state revenues.[1]

Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that (like other consumption taxes) it is a regressive tax.

[Rudy Kohn]

I agree that my characterization of the VAT is somewhat inaccurate.  However, without knowing much about the details, based on the statements in the article which suggest that the effect on the consumer is similar to a 25% sales tax, e.g. "A gallon of milk would jump from $3.69 to $4.61..."

Fully exploring the intricacies is impossible without knowing specifics, so I simply looked at the amount of money I spend on pure consumption (food, sundries, gas, ammo, etc.) in a year and multiplied by 25%.  The total amount is a bit higher than what I pay in income tax.

[zahc]

Are you assuming that you wouldn't STILL be paying income tax? I never considered it for a second. Taxes never go away.

[Rudy Kohn]

Again, I was going by the article.  It says that the VAT would exempt 90% of families from the income tax.

I assumed I'd be in that 90%, but of course I could be wrong.

[MicroBalrog]

Isn't the Fair Tax essentially the notion of replacing income tax by a sales tax or VAT?

[slingshot]

No source on the 20% figure.  I have read it.  I have also read the number 25%.

I'd like to see the entire current federal tax system scrapped and the Fair Tax enacted.  This is not a value added tax.  It is taxed at the buyer end of things on monies that are spend for goods or services.  Value added taxes are enacted at the manufacturer level and as a result is another hidden tax.  Federal and State taxes on gasoline, alcoholic beverages, and cigarettes/tobacco products are value added taxes as I understand it.  You still pay state sales tax on cigarettes and liquor.

The Fair Tax approach would most likely be so much better.  You spend money, you're taxed.  You save money, no tax.  No income taxes from paycheck prior to getting it.  Huckabee was pushing this as part of his platform for the Republican nomination.  The Fair Tax does not eliminate state taxes however.

What worries me is that they are just added another tax and leaving the old taxes in place.