“Amid the hue and cry over Paul Volckers comments last night about adding a federal sales tax there are some very real reasons we should have a serious debate about a VAT.
The first of those is illegal immigration.
The millions of undocumented aliens in America impose their own effective tax on the country. They absorb resources, such as health care, but because they often live off the grid they pay nothing in federal, state or local taxes. They do, however, spend money. Adding a small national sales tax would capture some of their spending and put it back into a system they benefit from.
Also think about drug dealers, gamblers and others who make their money illicitly. Do you think the local pusher is reporting his income to the IRS? I don’t rememeber seeing “occupation: dealer” on the 1040. The millions of people making money illegally won’t report it but they, too, will spend it.
These are not small sectors of the economy. It is estimated that as much as 10-15% of the entire U.S economy is underground with unreported income. A VAT, while far from perfect, would at least help us grab a few of those billions each year and force many to actually ante up for a system they take advantage of.
Here though is the big caveat – any addition of a VAT must come with a subsequent cut and cap of federal income taxes.”