Would you rather pay tax for every good you buy from the grocery store, or you continue paying income tax, filing your tax reviews with the tax guys?
There has been an ongoing debate on VAT, value-added tax, and whether or not the United States should adopt it.
Seeing that more than a fair share of developed countries use VAT as their major source of government revenue, the debate as to whether or not the United States should also adopt this tax system is rife.
Before we take a deeper look into the whys and hows OG VAT with regards USA, let’s define VAT.
Value Added Tax, according to Investopedia, is a consumption tax placed on a product whenever the value is added at each stage of the supply chain, from production to point of sale.
What this means is that at every stage of production, tax is paid. For example, if a person wants to make a shirt, at every stage of production, the taxes are paid.
At the stage where the cotton is bought, the value-added tax is paid on the cotton. When the cotton has been processed into material ready to be sewn, another Tax is paid. After it has been sewn and ready to be worn, tax is paid also. As value is been added in the chains of production, s required tax percent is paid to the government.
Therefore, many people see this type of taxing system as a better way of taking everyone as almost nobody can escape getting taxed.
However, despite desperate calls from economists and Policymakers, one of such supporters is William Gale, there are drawbacks to the use of VAT in the United States.
For one, many think it’s a lazy way for the government to get revenue, and also, that it’s a regressive tax system.
Why do they say this?
If you looked at the basis of VAT, you’d realize that many of the people who would pay more are the low-income earners.
And this doesn’t sit well with many Americans.
There is the belief that people who earn more should contribute more, therefore helping the economy grow.
However, with VAT, those who earn more won’t necessarily pay more in tax because they won’t or might not feel the pinch of the tax, especially if they don’t go about buying luxury goods.
While those people, the low-income earners, would spend almost all, if not all their income buying consumer goods.
And this, many have argued will do more harm than good.
Furthermore, there has also been an argument for VAT. Although these arguments aren’t as strong, neither have they been given much consideration by the general public, still they persist.
Some economists argue that VAT would help people save more.
Sounds good in the ear, doesn’t it?
Yes, it does.
But that is after you’ve eaten and gotten the bare necessities. If you don’t have these necessities there’s no way you would be keeping money in the bank.
Therefore, the “it encourages saving” saving argument seems dead on arrival.
That notwithstanding, there has been studies into the success of VAT in other countries.
Joana Naratomi’s study of the Brazilian system and how it worked shows that there is a possibility of VAT being effective if implemented in the United States. But that would have to wait.
For now, despite the many arguments for and against VAT, the United States still stands alone as one of the few countries that don’t use the VAT taxing system on her citizens.