..to this NY Times article entitled "Don't Fear the Invisible Tax" from yesterday, 4/21. He sums it up: "Opponents of the value-added tax complain that it is not sufficiently visible to voters, and is thereby an obstacle to responsible public spending. But in fact government spending is no lower in countries with more visible taxes."
This may be true but completely misses the main objection to the VAT.
"This is an excellent example of the "informed discussion" surrounding taxation in America:
First, it's "all taxes are bad," versus "all taxes are good," with those particularly partial to the old liberal-conservative back and fourth writing glibly "Did any Times contributor ever see a tax they did not like?"
But back in reality, you argue taxation's overall visibility doesn't determine gov pension contributions, so who cares?
Well, I do. The VAT is still a tax on wages, income, labor, which is inherently regressive. What about payroll taxes? Also on labor, so inherently regressive. What about the low capital gains taxes in America? On the earnings of capital, which largely accrues to the wealthier echelons, because after all, "it takes money to make money," so also regressive, because their so low in comparison to income and payroll.
It seems the discussion takes taxation as inherently evil, if perhaps a necessary evil, and then attempts to find the least bad tax. This is the right start, as all taxes do impose a deadweight loss on society, but on different demographics of society. And even the total deadweight loss varies depending on the tax. When there's nice diagonal supply and demand curves, this is referred to as Harberger's Triangle. BUT, when the thing being taxed is completely fixed in supply, this loss to society essentially vanishes, and if that weren't enough the incidence of the tax falls on the supplier of such goods, and cannot be passed on to the consumer, or employer. What in the world is fixed and could be taxed so efficiency and justly, you say? Well, you're standing on it: land. Wait, we already have property taxes, and they've been decreasing since the mid first half of the 20th century, they must not work very well. Well, they used to when they made up a larger portion of tax revenues, AND when they were based on the unimproved value of land; that is what it would be worth without buildings and other man-made additions. Turns out, the land value, which was not created or increased by the current owner, can very effectively be used to fund public expenditures, especially at a local level. These values, are created by increases in population, AND previous expenditure of the government: roads, schools, water supply, parks, fire and crime protection, etc, are all paid for by the community as a whole through taxation, yet are appropriated by the select few whose land has gained value because of such spending. In a nut shell, by taxing those surrounding the public improvements, the amount by which their land rose in value because of it, you can reach efficiently priced (short run marginal cost) provisioning of public goods! And on top of this, a tax on unimproved land value (land value taxation, or LVT) encourages efficient use of the land, by untaxing improvements, and making sure the owner is productive with it, in order to pay the tax, not just buy it, build a parking lot, and wait for the value to go up and sell it. So yeah, it also curbs speculation in land/real estate. But that doesn't happen here, we've overcome irrational exuberance; oh wait, that just happened.
And finally, for those who say, "no more taxes please," and think of LVT as just another excuse to extract the last coin from the working man's purse, think again:
the taxation on land does not add to the taxation on labor and capital, it replaces it. The average homeowner would be paying less overall taxes, because, although his property tax went up, he's no longer punished for improving the land, and his payroll and income taxes dropped correspondingly.
If it sounds to good to be true, it's because the doctrine of "neo-classical economics" has been forged intentionally and not, to bury this obvious and effective solution under the guise of advanced models increasingly not based on anything that resembles reality. Ever since Marshall, J. B. Clark, Knight, and the like started to subsume the third distinct factor of production, land, under capital, the war against land taxation began. And the fact the few these days even know about it, or it's popularizer, Henry George, who became the best-selling American author ever in the late 1800's, by selling over 3 million copies of his "Progress and Poverty," published in dozens of languages, is the greatest testament to their "success" there ever was. So, if you're down with the status quo for the next 100 years, please ignore this."
