Tax Law

VAT: Touching the Ultimate Third Rail

As the U.S. is virtually the only industrializad nation without a value-added tax, the VAT is viewed largely by American citizens as an abstraction... at least for now. But wait until it becomes part of the tax regime landscape! Sticker shock of monumental proportions awaits Americans when a VAT is introduced. This means political fallout of monumental proportions, as well. Which means that there won't be much more than talk until another election cycle - or two - passes.

But for all its faults and shortcomings, the exploding budget deficit syndrome makes the advent of VAT all but inevitable.  It isn't a matter of "whether," but "when."

That said, the devil is in the details, as outlined in a syndicated Robert Samuelson column appearing in Newsweek and other publications. Samuelson makes clear, among other points, that the "squeeze" is on: Basically, political leaders and citizens alike must decide what we want out of life.  This means we need to re-define what entitlements, levels of defense, and assorted baubles the government should deliver and what we expect to give up in return on a long-range basis.

These issues are becoming more real - i.e., no longer an abstraction. Samuelson talks about a 16% impact on retail prices for goods and services not exempt from a VAT.  Now that's what I call sticker shock!


  • I would echo the sentiments of Samuelson and others that unfortunately a VAT would seem to be a virtual inevitability. The more basic explanation appears to be that our country's insatiable appetite for consumption needs a cure, and the VAT is possibly just what the doctor ordered. Perhaps after this level of sticker shock, consumers will begin to make different economic decisions which, while painful in the short term, will be the first step towards remedying the errors that have brought us to this point.