The VAT is a consumption tax, like a retail sales tax, but collected in bits at each stage of production rather than all at once at the retail level. https://www.taxpolicycenter.org/briefing-book/what-vat … (2/14)
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VATs (which exist in 168 countries) (1) raise a lot of revenue (2) are efficient – they don’t distort key economic choices like saving, investment, financing, retained earnings, or organizational form; and (3) are easier to administer than retail sales taxes. (3/14)
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An American VAT should include (a) a broad consumption base, (b) border adjustments, and (c) small business exemptions. Policy makers should (d) adjust govt spending on means-tested transfers and social security to account for price level shifts and (e) create a UBI. (4/14)
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Every VAT in the world border adjusts—exempts exports and taxes imports. This is what aligns the tax base with domestic consumption (again, like the retail sales tax). Border adjustment is not an export subsidy or retaliatory tariff. (5/14)
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The proposed UBI is the federal poverty line * the VAT rate (10%) * 2. A family of four, for example, would receive about $5,200 per year. (6/14)
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The paper shows that the proposal would raise 1.1% of GDP in revenues ($2.9 trillion over 10 years) even after paying the UBI. (7/14)pic.twitter.com/EGH4B48Yfr
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Growth effects would depend on how the revenue is used but for any given use of the revenue, VAT will help long-term growth more than hiking income tax rates. (8/14)
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To avoid having the VAT disrupt the economy in the short run, the proceeds should be used in the early years to stimulate the economy, and the Fed should accommodate the VAT by letting the consumer price level rise. (9/14)
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The proposal would be extremely progressive. After-tax income would rise by 17% among HHs in the bottom quintile, remain unchanged in the middle quintile, and fall by 5.5% in the top quintile. The top 10% of HH by income would pay more than 100% of the net tax burden. (10/14)pic.twitter.com/fhZ3yGjTCb
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The VAT would impose a 10% tax on existing wealth. This burden has enormous advantages compared to a direct wealth tax: it is hard to avoid, it does not require measuring asset value, and it is extremely progressive (21% would be paid by the top 0.1%). (11/14)
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States would not have to conform their sales taxes to a federal VAT, but if they did, they would be able to tax services and internet sales better and avoid taxing business purchases. (12/14)
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In the 1980s, Larry Summers said that we don’t have a VAT because liberals think it’s regressive and conservatives think it’s a money machine and that we would get a VAT when the positions were reversed. This is totally accurate and points the way to achieving a VAT. (13/14)
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Liberals should realize that the VAT can be progressive, given the UBI and given how the revenue is spent. Conservatives should realize that a VAT imposed in the context of a long-term budget agreement would help control spending. (14/14)
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The book (and my paper) can be downloaded here: https://www.hamiltonproject.org/papers/tackling_the_tax_code_efficient_and_equitable_ways_to_raise_revenue … (fin)
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