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Could America be set for a VAT?

December 2, 2008 by  

Many countries use a VATBarack Obama won the November presidential election with questions still lingering for many about whether his tax proposals would actually benefit the average American – particularly as the economy sinks into a recession.

Now, an article in Fortune has suggested that the U.S. may be forced to impose a value-added tax (VAT) in order to raise needed funds.

In a VAT system, tax is applied to a product at each stage of its production, with suppliers and sellers sharing the tax burden with consumers.

Many countries around the world already employ a VAT. According to the publication, nearly half of the revenue raised by the French government is derived from the tax.

Some say that America could soon be facing the same problems that other nations saw in the past.

"The bottom line is that the income tax cannot support the level of spending that’s projected, something other countries faced years ago," Robertson Williams of the Tax Policy Center told the news provider.

However, others point out that when the government increases a VAT, it can slow down a country’s economic growth. Meanwhile, the middle class may end up paying more on staples such as food and energy, which also may stand in the way of growth.
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