How the Value Added Tax Works

Conn Carroll / December 28, 2010

The spending pace of President Barack Obama and the 111th Congress simply cannot be sustained. There will either have to be spending cuts or higher taxes. The left prefers higher taxes, including the imposition of a value-added tax (VAT). How would a VAT work. Heritage scholar Curtis Dubay explains:

The VAT is a consumption tax that taxes the value added by businesses at each point in the production chain. It can apply to both manufactured goods and services. This contrasts with the more familiar income tax, which taxes salaries, wages, and the returns to savings, but does not tax purchases. Because the VAT is a consumption tax, it would closely mirror the sales taxes that most Americans pay at the state and local levels. In fact, consumers would experience no difference between a national sales tax and a VAT. A sales tax and a VAT designed to raise equal amounts of revenue would raise the final price of purchases by roughly the same amount. (more…)