The Value-Added Tax: Is It Good for the United States?
Michael D. Cobb
BUS490 Business Policy
Professor: Robert Brown
May 29, 2011
The individual federal income tax system used in our country is currently extremely complicated. It is so complicated that the tax code started with about 400 pages long in 1913 to over 70k pages long today (CCH, 2010). It benefits higher income individuals leaving those that are at or below the poverty line in a struggle. Our government is currently looking for solutions or alternatives to the current system being used in this country. The value added tax system is another alternative to our present tax system. The value-added tax is considered a broad based indirect consumption tax with fiscal long term issues. It is levied on goods and services at all stages of production from raw material to the final product. The value added tax is imposed on value additions at various production stages. This tax system is mainly used in European countries as well as many others around the globe (Economywatch, 2001). The concept originated in France as TVA (taxe sur la valeur ajoutee) by French economist Maurice Laure in 1954 as one of the state’s major finance sources. With the use of the tax system, government could invisibly raise revenues with the tax not showing on bills paid by buyers. It differs from the sales tax in that it is levied all exchanges of the product and not on the total value of the goods and services so the buyer does not have to shoulder the total cost of the tax. Conversely, the tax is not applied on exports goods to steer clear of taxing the final product twice. If export goods are charged, the amount of the tax is refunded to the person paying the tax (Economywatch, 2001). The VAT cannot be recovered on purchases made by individual consumers. Business can only recover the tax on services and materials that they buy to continue product supply and service. This tax system was introduced to address the increase of smuggling and cheating as a result of increasingly high sales tax and tariffs. The European Union uses this form of taxation in all of its member states. Member states use different rates of 0% for a reduced rate and a minimum of rate 15% determined by authorities of the different member countries. Some countries, like India, use the VAT to replace the sales tax (Economywatch, 2001). The value added tax serves as a tool to resolve many different problems associated with the use of the sales tax system. The VAT uses stipulation for an input tax credit dissimilar to the sales tax system. This system of taxation is very simple, making the whole system of taxation on services and consumer products much easier. The high rate of prospective income yield is the main reason of the interest at the congressional level. “Other aspects of a VAT that often raise interest of concern include international comparison of the composition of taxes, VAT rates in other countries, equity, neutrality, inflation, balance-of-trade, national savings, administrative costs, compliance, intergovernmental relations, and size of government” (Bickley, 2011). As with any change, there will people for and against and pros and cons. When taking into account theses changes, a close examination of some of the pros and cons are always in order. These are not all but some of the most common and interesting things we have to consider. Pro: Increased Revenue
An increase in federal revenue would result from imposing a new tax. Right now only local and state governments change sales tax on consumer purchases. By implementing a value added tax the federal government could profit from consumer purchases. Con: Regressive Tax System
Higher income taxpayers would benefit more than lower income tax payers. “Low and middle income households consume more of their income than high income households do… “High income...
References: Bickley, J. M. (2011). Value Addded Tax as a Revenue Option: A Primer. Washington DC: Congressional Research Services.
CCH. (2010, January). Standard Federal Tax Reportr. Retrieved June 2011, from CCHGroup.com: http://tax.cchgroup.com/FED/default.htm?cookie%5Ftest=1
Deutch, R. (2010, May). 6 Pros and Cons of Value Added Taxes. Retrieved May 2011, from Going Legal: http://www.goinglegal.com/article_1574534_75.html
Economywatch. (2001). Investment & Finance Report. Retrieved May 2011, from Economy Watch: http://www.economywatch.com/business-and-economy/definition.html
Ensinger, D. (2011, April). VAT Has Advantages. Retrieved May 2011, from Economy In Crisis: http://www.economyincrisis.org/content/vat-has-advantages
Gale, W. (20005, March 3). The Pros and Cons of a Consumption Tax. (R. Suarez, Interviewer)
Murphy, C. (2010, April). VAT: Will the U.S. Adopt a Value-Added Tax? Retrieved May 2011, from CBS News Business: http://www.cbsnews.com/8301-503983_162-20001918-503983.html
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