Paul L. Caron

Wednesday, February 19, 2020

Gale Presents Raising Revenue With A Progressive Value-Added Tax Today At UC-Irvine

William Gale (Tax Policy Center) presents Raising Revenue with a Progressive Value-Added Tax at  UC-Irvine today as part of its Tax Policy Colloquium Series hosted by Joshua BlankVictor Fleischer, and Omri Marian:

Gale (2020)To raise revenue in a progressive, efficient, and administrable manner, this chapter proposes a new national consumption tax: a broad-based credit-invoice value-added tax (VAT). The proposal comes with several qualifications: the VAT should complement, not substitute for, new direct taxes on the wealth or income of affluent households; to ensure the policy change is progressive, the VAT should be coupled with adjustments to government means-tested programs to account for price level changes, and with a universal basic income (UBI) program; to avoid having the VAT depress the economy, revenues should be used to raise aggregate demand in the short run and the Federal Reserve should accommodate the tax by allowing prices to rise. A 10 percent federal VAT that funded a UBI equal to 20 percent of the federal poverty line would be highly progressive (with net income rising among the bottom forty percent and not changing in the middle quintile) and would still raise more than 1 percent of GDP in net revenue. VATs are a proven success, existing in 168 countries. VATs have been proposed by both Democrats and Republicans in recent years. Concerns about small businesses, vulnerable populations, and the states can be easily addressed.


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My main concern with a VAT is that it would involve substantial administrative and compliance costs. Compliance costs tend to fall disproportionally on small businesses. I am not convinced that we could not raise the needed revenues through the income tax. This would be administratively much simpler.

Posted by: Victor Thuronyi | Feb 20, 2020 10:03:06 AM