Is the Value-Added Tax a Possible Solution?

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There are long-time supporters and opponents of a value-added tax. Recently, there has been renewed debate about whether or not adoption of this type of tax structure would help the U.S. address the growing deficit and debt problem. There are strong opinions on both sides – some believe it is a panacea and others think it will destroy our economy – hyperbole aside, the tax is drawing renewed study and consideration.

A number of countries have implemented a VAT in the past and today use variations on the theme. There has been success on some levels.

With the economy remaining sluggish, we are seeing more focus on a value-added tax. Some in Congress and the Administration are not ruling it out as an option down the line. This has some groups and industries preparing strong opposition.

This week, a report for the National Retail Federation, ‘The Macroeconomic Effects of an Add-on Value Added Tax’ was released concluding that such a tax would cause a steep decline in consumer spending and significant job loss. The report said:

‘Retail spending would decrease by $260 billion in the first year of enactment of a VAT and would drop by $2.5 trillion over the next 10 years, the report said.’

It is clear that the notion of a value-added tax is gaining attention, and will evoke the passions of proponents and detractors alike.
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