By Diana Furchtgott-Roth
The misguided valued-added tax seems like a magic money-making bullet to the nation’s deficit problems. The Tax Foundation estimates that Sen. Ted Cruz’s 16% VAT would net $25 trillion over the next decade. Sen. Rand Paul proposes a 14.5% “business activity tax” that would operate much like a European value-added tax, or VAT.
But once the VAT is put in place, it is practically impossible to get rid of it. In countries that have it, the VAT rises over time incrementally and gives government immense power. Cruz and Paul are in favor of smaller government, but their suggested VATs would expand government clout.
VATs harm consumers through increased prices and broader tax bases. Although Cruz and Paul suggest it as a substitute for other taxes, in advanced countries, parliaments, congresses, and assemblies don’t get rid of other taxes. They add the VAT on top of existing levies...
Unlike state sales taxes, VATs are charged in small amounts along the entire supply chain. The final tax is hidden... Due to their hidden nature, VATs tend to grow over time, and 26 of the 33 advanced nations with VATs have raised their rates.
From 1975 to the present, VAT rates have risen in the U.K. from 8% to 20%. In Norway, they increased from 20% to 25%. These taxes are in addition to European income taxes that are relatively high by American standards.
For instance, when imposed in 1967, Denmark’s VAT was 10%; it is now 25%, in addition to a top income tax rate of 56%. In 1968, Germany levied a 10% VAT. Germans are more fortunate; their VAT has risen “only” to 19%, and their highest income tax rate is “only” 48%...
Cruz and Paul make the VAT the centerpiece of their tax-reform plans. But America needs to move away from European policies, not towards them.
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