VAT is essentially a national sales tax. Such a tax would not help most people in Boone County.
1. Starting up a national sales tax by itself will not eliminate tax returns. Canada and Australia both have a Goods and Services Tax (GST) that is a VAT. In Canada, it's extremely unpopular, and often called the "Gouge and Screw Tax." It even applies to postage stamps. Provincial sales taxes are also collected in Canada.
Both countries still have income taxes that are just as high as the US. Canadians "file" and Australians "lodge" tax forms that are every bit as complicated as Form 1040. This in addition to sales tax and GST in the 10-15% range.
How the tax system is structured is what determines whether a complicated tax return must be filed. The United Kingdom has both a VAT and an income tax. But, because of the way the UK system is designed, many Britons do not have to complete a tax return. New Zealand works similarly.
2. Most Americans pay federal income taxes of less than 17%. But they also pay an additional social security tax of just over 15% of their wages.
Social security taxes are cleverly disguised. Unless you are self employed, they don't show up on Form 1040: On your paycheck, you'll see a deduction, sometimes labeled "FICA." Double that amount is paid in social security taxes on your wages.
Most people also pay state income taxes and state sales taxes. Remember, none of those taxes would go away if the federal income tax was replaced with a 17% national sales tax.
For most people, it would be a significant tax increase.
3. In most states and the federal system, it's rightly assumed that the well-off can pay a bigger percentage of their incomes than those with more modest means. Yet a flat tax (whether income or VAT) is often called a "fair" tax, because everybody pays the same rate. This presumes that Fred Factoryworker, with a family to support, can just as easily and should pay the same 17% of his income as Milton Millionaire.
4. To see just how "fair" a flat-tax system is, look no further than Illinois.
Millionaires in Lake Forest, Illinois have one of the lowest tax state income tax rates in the US. Just 3.75%. But a poor, struggling family in Belvidere pays that same rate, too. If you're trying to support a child on $20,000 per year, a 3.75% state income tax rate doesn't help. Nor does a sales tax of 10.25% on diapers in Chicago.
Illinois' flat income tax is embedded in its Constitution. Large Illinois corporations get a break because the Constitution caps the corporate tax rate as a function of the flat, personal income tax rate. Then factor in a "flat-rate" toll for every car on Northern Illinois expressways, and a flat-rate license plate fee (Late-model BMW owners pay the same as a 1999 Chevy).
With our flat, "fair" taxes, despite having one of the highest tax burdens in the US for the poor and middle class, Illinois is flat broke!
5. VAT is ultimately paid by consumers. A VAT in the US would not affect the bottom line of a corporation considering a move overseas. For a VAT to influence that decision, we would have to give a corporate tax break and ask working families to pay more of the burden (either as VAT or income tax). There are better ways to stop basis and income shifting to tax haven countries than giving into the demands of greedy companies that don't want to pay their fair share.
The income tax is too complicated. Lobbyists and others have contributed millions to politicians to keep the current system in place. The tax should be simpler, as well as fairer.
The solution is real reform, not gimmicks like VAT or flat-rate taxes.
