The U.S. is at a competitive disadvantage by not employing a VAT, which would work to create a more level playing field in this era of globalization. Today, all U.S. trading partners employ a VAT, as do over 150 countries. The VAT concept, approved under GATT rules, is border adjustable and subtracts the burden of government from the competition of goods and services in world trade.
Consideration is being given to a VAT as the better means to cover growing U.S. budget deficits in the future – when the economy rebounds. The federal budget is in huge deficit, now, with three dollars expended for every two dollars collected in tax revenues. And, deficits are projected to expand further with the increase in expenditures for Social Security, Medicare, Medicaid as the baby boomers reach retirement age in greater numbers. After all practical spending cuts are made, additional taxes will still be needed to achieve a balanced budget. Most economists, and most citizens would prefer to have a future tax increase in the form of consumption taxes rather than income taxes.
The VAT could be implemented in a revenue-neutral tax plan that affords flexibility for increases as needed after the economy recovers. But, for political considerations as well as stimulus, a VAT would likely be implemented along with an initial reduction to overall taxes, much as Canada and Japan did.
Revenue-neutral replacement of the Corporate Income Tax with a VAT would eliminate a competitive disadvantage in world trade, and there are other stimulative benefits to be gained from this substitution. The VAT would reduce or eliminate the incentive for multinationals to use transfer pricing to shift profits to lower-taxed countries, as the U.S. would become the lowest (corporate) taxed country. The double-taxation of dividends would be eliminated. And, with a broad-based VAT without preferences, gone would be the lobbying for loopholes.
In addition, the time-certain implementation of a VAT would be an off-budget stimulus, as consumers would likely speed up purchases to avoid the VAT. The VAT consumption tax would work to restructure the economy by putting a drag on spending and encouraging savings.
About the Publisher
Steve Abramson is a business entrepreneur and innovator who has created start-up companies in different industries. After receiving his MBA from NYU, he joined Merrill Lynch as a Corporate Planning Analyst, and moved on to pursue his interests in marketing as an advertising account executive at the core agency of Saatchi & Saatchi Advertising. After a few years, Steve’s focus turned to the printing industry where he founded companies on the leading edge of applied computer technology and where he became a major printer and publisher of pharmaceutical advertising literature. Steve has published books on fine art and the First Amendment, and holds patents for a color recognition standard used in all major computer imaging and design software. He worked for Jerry Brown’s 1991 presidential campaign in New York, at which time Gov. Brown called for sweeping tax reform with a VAT and a flat tax on personal income. Steve and his wife live in Southampton, NY, where he is active in local community affairs.