It is possible to make a VAT less regressive by using some of the new revenue to reduce income taxes or payroll taxes paid by working families. Some countries with VATs exempt necessities such as food. We can also offset its regressive nature by coupling it with new surtaxes on very high incomes.
So when the president’s fiscal commission raises the idea of a VAT, as is likely, we need to ask three questions:
- Are basic necessities like food and housing to be exempted?
If not, the VAT should be considered dead on arrival. The last thing we need in a deep slump with persistent unemployment is higher taxes on the middle class.”