How a Value Added Tax Would Harm the U.S. EconomyThis one is a joke. Did you read it? The basic argument is that countries with a VAT have a higher level of taxation. So? There was no cause and effect established.
Australia - Cash economy continues to growThe problems with Australia's GST and the black market are a warning for both the VAT and the NRST. Does this story sound familiar?
When the Prime Minister and the Treasurer were making the case for the introduction of the GST in the lead up to the 1998 federal election, and during the period up to July 2000, it was claimed, amongst other things, that the GST would wipe out the cash economy. They argued that the GST would increase the tax base and revenue raised would be used to fund the growing demand for public goods and services. Many experts at the time doubted the Government’s claims as there was no empirical evidence anywhere in the world that the introduction of a GST or VAT had achieved any such outcome. In countries where similar attempts were made to reform the tax system the outcomes have been less than favourable.
The chickens have now come home to roost. The Government’s claim has been shown for the illusion that it always was. The recent study by Christopher Bajada of the University of Technology in Sydney has shown quite conclusively that the black economy is significant and growing. According to the study, the black economy is estimated to be up to 15% of GDP. Based on the 2002/03 federal budget that was presented by the Treasurer in May this year, GDP is approximately $740 billion. That means that the extent of the black economy is as high as $110 billion.
Tax distortions, household production and black-market workMore black market stuff?
THE NATURE OF THE UNDERGROUND ECONOMY. SOME EVIDENCE FROM OECD COUNTRIESEven more black market stuff! How exactly do you expect the NRST to avoid this same problem? In fact, it would be worse with a NRST. If this is your only complaint against a VAT you have a pretty weak argument.
Who Pays The VAT ?This is just a incidence study of the VAT, not a study of how it effects the economy. I wouldn't expect the incidence of a VAT to be much different than a NRST so what's your point?
Even more black market stuff!
So far your only substantive argument for a VAT is it theoretical enforceability, actual experience with real VAT implementations show the fallacy of such arguments, in fact according to those studies the degree of complexity and red tape that induces the entrepreneur and small business to evade and go to cash underground is of at least equal if not greater importance the rate of the VAT.
As far as the US is concerned you entirely over look the fact that there is no infra-structure in place to support a VAT which would necessitate the cost of creating the infra-structure with a new Federal level of enforcement over and above the current state systems, as well as the overhead and administrative costs imposed on intermediate level business that are not present with an NRST.
All in all, the VAT not only does not meet the expectations of enforceability you claim for it (it actually increases black market activity even at low(<10%) rates when replacing single stage sales taxes) in real practice, it imposes unnecessary economic and regulatory burdens on business creating high entry barriers for small businesses and drives established one out of the market.
A VAT, by clear experience in the EU and around the world, demonstrates the proclivity of central governments to lay ever heavier burdens on business in the form of complex regulatory and exclusionary rules via the VAT actually exacerbating and evolving into tax systems worse than the tangled mess of the US corporate income tax.
The clear evidence of the VAT operating in reality demonstrates the best place for it is in academia and think tanks not in the real world affecting real economies and real people.
I would agree that VAT (the credit invoice variety) compliance is easier to AUDIT, but that does not necessarily equate to easier to enforce. VAT enforcement would have vastly more entities to enforce than the FairTax making a cheater less likely to be audited, would of necessity be handled by a federal IRS type agency, would have to monitor every transaction made at every level of production, rather than just the retail point of sale, would still give the federal government justification to demand to know every entity's income and expenses, and would burden industry with a greater cost of compliance than the FairTax.
Provided the VAT plan had all of the other features of the FairTax (such as the rebate), I can't think of much where it would differ from the FairTax.
Can you suggest any advantages/disadvantages I have not thought of? I'm very interested in this since it seems odd to me that you seem so opposed to the FairTax, yet have expressed favor for a VAT.
I don't see a single advantage for the VAT except for the ability to cross reference one entity's audit, with everyone that that entity has done business with... which brings to my mind images of tax audits moving from company to company like a computer virus spreads from pc to pc. This would surely result in the cost of audits being imposed upon entities simply because they did business with someone else who is being audited.