We must repeal the 16th Amendment first in order to avoid having both a VAT and an income tax. Columnist George Will made this the centerpiece of his case against the VAT in a recent column. It’s a silly argument because, contrary to popular belief, Congress was not prohibited from taxing incomes prior to the 16th Amendment. As historian David Levenstam explains in the libertarian magazine Reason, the Supreme Court struck down an income tax enacted in 1894 on narrow grounds and did not find the taxation of incomes to be unconstitutional.
While it is reasonable to say that it might be a bad idea to tax both consumption and incomes, repealing the 16th Amendment would provide no guarantee against this happening. We would not only have to get rid of that amendment, but enact another one that clearly, unambiguously prohibits–immune from court challenge–the federal government from taxing incomes. This is impossible, if only because the definition of income is so elastic.
The VAT is a hidden tax. This is also a silly argument. The VAT is no more hidden than any other tax. Ask yourself, do you really know what the sales tax rate is in your state or the property tax rate in your community or even what your effective federal income tax rate was last year? (Guess and then check; more than likely you overestimated all of them quite a lot.). According to polls, most people have no idea. The chances are far better that those who pay the VAT in other countries can tell you precisely what the rate is because it covers such a wide array of goods and services and is the same throughout the country.
Even if the VAT were an especially hidden tax, is there any reason to believe that hidden taxes are more easily increased than more visible taxes? Indeed, there is none. Economist Casey Mulligan, a VAT opponent, recently looked for evidence and could find none. He concluded that “tax visibility is empirically unrelated to the amount of taxation and government spending.”
The VAT is too complicated and will be riddled with exemptions. This is a weak argument because all taxes are complicated. They’re complicated because people don’t like paying them, which then requires governments to continually plug new loopholes and evasion tactics that people are always discovering, and because Congress is continually meddling with the tax code to buy votes and redress legitimate grievances.
While a VAT would indeed be tricky to implement, once in place it is not especially complicated, certainly no more than the retail sales taxes that exist in almost every state. One reason I support a VAT is because so many other countries have one that we could learn from their experience and avoid making our VAT unnecessarily complicated.
The VAT is inflationary. While it is true that imposition of a VAT will more than likely raise the price level by about the amount of the tax, this is not what economists normally think of as inflation. That would be a continuing rise in the price level year after year resulting primarily from excessive money creation by the central bank. Any rise in prices resulting from imposition of a VAT would be a one-time event that would have no effect on the general trend of inflation.
The VAT is a money machine. This is probably the biggest problem most conservatives have with the VAT. In their minds, its primary virtue–the ability to raise large amounts of revenue at low deadweight cost (the output lost to taxation over and above the tax itself)–is also its primary vice. If taxes are insufficiently burdensome, conservatives reckon, then they will be too easy to raise. To keep taxes low, they believe we should raise them in the most painful and burdensome manner possible.
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