THE VALUE-ADDED TAX

THE SUCCESS OF the value-added tax (VAT) in European countries has convinced many that it could be a viable solution to relieve federal budget woes in the United States. But questions still finger. A VAT is a tax on the value added at each stage of production, distribution or retail sale. The credit (invoice) method of computing the VAT is generally considered the most appropriate for the United States. AMONG THE MOST important concerns about a VAT is its regressivity. Because the final consumer pays 100% of the tax, the poor, the elderly and young couples, who consume a greater portion of their incomes, will bear much of the burden. OTHER CONCERNS ABOUT implementing a VAT in the United States include administrative costs (and the need for more IRS personnel), the fear Congress would turn it into a "money machine" and general concerns about its effect on the overall economic and business climate. A VAT WAS under consideration in the United States as far back as the Nixon administration. Today, with the addition of new taxes unlikely, few are convinced a VAT would address all of the concerns any new revenue source must satisfy.