A Value-Added Tax Would Be Great -- If Anyone Wanted One

About a week ago, the New York Times featured an article by Catherine Rampell about a value-added tax (VAT) as the way out of America's fiscal problems. It was quite good. A VAT is favored by a large spectrum of economists for differing reasons. It has its positives and negatives, many of which have already been explored on this blog. But what do Americans actually think about it? They don't want one, and Washington isn't likely to convince them otherwise.Back in October, I wrote about a Rasmussen poll exploring Americans' opinions on a VAT. The poll showed 67% opposed such a tax. But in response to this statistic, I said:

I suspect the numbers would get better if those polled were given an option where a VAT would replace other existing taxes.

I then went ahead and put an informal poll up, making precisely that change, to test my theory. Here were those results: Hypothesis proven! Though not very scientifically. But someone at Rasmussen must have had the same idea -- or read my post. This week, it conducted a new VAT-driven poll, but this time it also asked whether respondents would more likely favor such a tax if it replaced existing taxes. The results weren't far off from what I would have expected. First, similar to their October results, 65% still opposed a VAT as an additional tax. But then Rasmussen specifically asked if respondents would like a national sales tax if it replaced the federal income tax. Here are those results: As you can see, suddenly Americans are far more willing to embrace a VAT if it takes the place of another tax. Yet, 44% is still less than a majority. That shouldn't be completely surprising, given what Rasmussen specifically asked -- many low- to -middle-income Americans would likely end up paying more with a VAT than they did in income taxes, since the rich would pay a smaller portion. It's regressive. But that's not the only reason why Americans are wary about a VAT. Rasmussen also found:

But the skepticism factor makes that trade-off a tough sell at best. Just 24% believe it is even somewhat likely that the government would actually reduce the income tax once the sales tax was implemented.

And I can't blame them. While it sounds nice, in theory, to imagine a world where a VAT could replace other taxes, few believe Congress would really stick to its guns and decrease other taxes substantially to substitute them with a VAT. And that's why a VAT will likely continue to find significant resistance from the public -- not because it's a purely awful idea, but because Americans don't trust the politicians in Washington.

This article available online at:

http://www.theatlantic.com/business/archive/2009/12/a-value-added-tax-would-be-great-if-anyone-wanted-one/32249/