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Rumors are afoot that the Trump administration is considering a Value-Added Tax, or VAT, as a possible component of its tax reform efforts. Hopefully, those rumors are not true, especially if imposing a VAT does not include elimination of the Federal income tax. In fact, it would make things worse. We’d have a new tax, the VAT, plus all the problems inherent with the current income tax, which are many.

A lot of people say a VAT is just a Sales tax in disguise. It is true that a VAT wears a disguise. That’s part of the problem. A traditional VAT is a tax that is imposed on every sale in a supply chain from the raw materials to finished product. The FairTax® is a retail sales tax, charged once at the point of sale to the final consumer of a product. It is way simpler and way more transparent than VAT.

It just could be that politicians like obscurity when it comes to taxes so, politically, a VAT can be more attractive to them. Keeping things behind the curtain provides a bigger opportunity to increase taxes or manipulate changes with less chance that the public will notice. It also creates a new opportunity for cronyism. That runs totally contrary to the public’s desire for greater transparency in government and fairness in taxation. Isn’t that a big part of what “draining the swamp” is all about?

A VAT would only add to the murkiness and size of the swamp. First, the tax would be hidden from those who ultimately pay – you and me. Second, life would become even more complicated for businesses in a supply chain. Aside from the massively and needlessly complicated income tax code, businesses would have to keep track of a whole new form of taxation. US businesses would have another drag on their worldwide competitiveness. The government would need a whole new set of bureaucrats to monitor the entire process. That places an even bigger burden on small businesses who don’t have departments of accountants and tax lawyers to work on their behalf.

Why is it necessary for politicians to reinvent the wheel with square tires when a perfectly round design has been there for years ready for them to use? While VAT as a REPLACEMENT for the income tax could be an improvement, it ignores that a better solution, the FairTax, has been out there for many years. All they need to do is pluck that ripe fruit from the tree. FairTax supporters should let their elected officials know. Otherwise, we may have a whole new tax, well-camouflaged from public view.

 

 

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