Wednesday, April 06, 2005


VAT taxes are superior to sales taxes if you want to set the rate at a high level, but otherwise they're an especially burdensome tax on small businesses and the like. The accounting and compliance costs are fairly high, and I see no reason to add an entirely new tax on top of our already overly complicated tax system. We can raise huge amounts of additional revenue if we need it by doing fairly minor tweaks to our existing tax code, and adding an additional amount of regressivity is just a bad idea.

quibble with Ezra's post: sales taxes are only paid on retail goods, not wholesale ones - that's why the VAT tax only taxes the "value added" - to allow it to enact the tax at every stage of the production process without being overly distortionary on the production process itself. If sales taxes were applied to every wholesale transaction, then companies would simply vertically integrate to minimize the number of those transactions.