• U.S.

Vat Is This Thing Called VAT?

2 minute read

Let’s see. There’s the energy tax. The tax on the superrich. The increased corporate income tax. Sin taxes. And now, much as they hate to, the people who once promised no more taxes on the middle class are considering just that: a value-added tax (VAT).

VATs, common in Europe, impose tariffs at various stages of a product’s creation, with the cost eventually passed on to the consumer in the price of the finished goods — a de facto sales tax. Bill Clinton, shying away, dubbed them a “radical” revenue-raising method in February. But faced with the expected multibillion-dollar annual cost of extending medical coverage to all Americans, Health Secretary Donna Shalala and budget guru Alice Rivlin both seemed intrigued by a VAT — apparently in addition to health care-dedicated revenues to be derived from higher taxes on alcohol and tobacco.

Like any sales taxes, VATs are said to be “regressive” because they fall more heavily on middle-class and poor people, who spend most of their earnings on goods, than on the rich. Some countries have partially offset this tendency by exempting the essentials — food, health and housing — from VATs. Clinton communications director George Stephanopoulos was disinclined to get into that sort of detail on a topic so vulnerable to bipartisan attack. Instead he chose vigorous and decisive obfuscation. “If a decision is made to go forward with something like that, it’s certainly something the President will explain and justify,” he said. “But no decision has been made along those lines.”

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