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Interesting Value Added Tax Analysis

February 28, 2010 – Comments (1)

From Fareed Zakaria, Newsweek:

To get a sense of the revenue potential, imagine if the United States were to adopt a VAT at the high end of the range—25 percent, similar to that of many Scandinavian countries whose economies have still grown as fast as America's over the last three decades. Such a tax, Leonard Burman calculates in the University of Virginia Tax Review, would bring in enough money to balance the federal budget, pay for health-care expansion, eliminate the income tax for all those earning less than $100,000 (90 percent of households), and cut the top tax rate to 25 percent. The tax would also restrain Americans from over--consuming and reward them for saving, the single most important long-term shift we need to encourage.

I'd like to believe that's true, and maybe it is. I'm all for restraining overconsumption and rewarding saving, but sensible interest rate policy is probably the best way to achieve that.