Selling the Left on VAT

Selling the Left on VAT

Liberals don't like VAT because it is a regressive tax. They are factually correct. VAT is regressive.

The VAT that Warren Buffet pays on a ham sandwich is exactly the same as what a poor person pays on an identical purchase. VAT is blind as to who is doing the consuming.

Such blindness is a virtue from the standpoint of enforcement and administrability. But it's a legitimate concern in terms of vertical equity. Some people want to see Warren Buffet pay more tax when he buys a sandwich, but the design of VAT doesn't permit it. That's why people often say the poor would be "thrown under the bus" if America gets a VAT.

How do proponents of VAT respond to these criticism? I'm glad you asked.

Rather than look only at the tax code, one must gauge a society's overall progressivity (or lack thereof) according to the entire footprint of public sector activity -- both on the taxing and spending sides. Once we shift perspectives, you realize the distributional burden of VAT can easily be offset by the manner in which governments deploy the resulting tax revenue. Our public entitlement programs are strongly progressive in their distribution of benefits...

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