The tax proposed by Kotlikoff is not a VAT at all but the FairTax which is a national retail sales tax differing substantially from a VAT and it's surprising that one presumably versed in economics would fail to notice the difference. It operates nothing like a VAT (which taxes everything at every stage of production and embeds tax costs in the prices of goods and services much like the present income tax), but is a single-stage tax at the end-consumption (retail) level only, taking a thing once and only once. It is far simpler, less expensive, and less prone to abuse that either a VAT or an income tax.
The "33%" rate Kotlikoff names is based upon his assumption of none of the savings of the costs of the present income tax system operating to reduce prices but instead going entirely to benefit workers (along with the employer part of the payroll taxes) and causing prices to rise to a higher level because of it (along with no compliance cost savings), Other economists make the opposite assumptions and believe prices will drop 22 - 24% and workers will have only their existing takehome pay. Obviously the truth is somewhere between these two extremes.
Most economic studies find the 23% tax inclusive rate (which is the rate presently in the bill and is 29.87% tax exclusive) to result in some reduction in prices due to removal of the income tax costs and compliance costs with workers getting their full paycheck (not counting the ER payroll portion which would go toward reduced costs). Done this way, prices will decline somewhat with the income tax removal, workers will receive their full pay which - along with the prebate they may receive - will more than compensate them for the new prices after FairTaxes are added. IOW, a purchasing power increase for most taxpayers. Some will be greatly helped, some less so, but after all, the tax is designed to be revenue neutral so there should be very little change for most but removing the hidden costs of the income tax will raise disposable personal income somewhat overall.
Kotlikoff's bankruptcy scenario is based mainly upon the walloping and massive increase in social entitlement costs which are not sustainable under the present tax system as he clearly points out.
We're together on the idea that Kotlikoff rightly pointed out the serious problems we face if we're not careful. He brought up the crazy song and dance about and America going bankrupt so people would put the rant on this thread.
It gets to be a real crock when Freepers take the doom'n'gloom shtick to an extreme with invasions from China. Reminds me of what's happening with natural resources-- an important issue that that global warmers take our focus away from. IMHO Kotlikoff does the same.
First, no way in hell is the US going bankrupt. Second, entitlement programs should, can, and will be cut --all without national bankruptcy. For all the possible benefits that might come about with this silly flatfairwhatever tax caper, there are a lot of other much simpler options; and they don't involve diverting our focus away from the very serious issue of entitlement management.