The Value-Added Tax: Key to Deficit Reduction?

By Charles E. McLure Jr.; Mark A. Bloomfield | Go to book overview

6
Issues in the Design of
a Value-added Tax

In appraising the economic effects of the value-added tax and thus the desirability of an American VAT, it is generally satisfactory to consider whether the United States should adopt a tax with the economic effects of a federal retail sales tax. Although the two taxes and their economic effects would not be exactly equivalent, they would be sufficiently similar to make the comparison valid for most purposes. Having said that, however, I must emphasize that the administrative techniques employed to collect a VAT do matter. First, the VAT treats capital investment, services, and international trade more satisfactorily than a retail sales tax, at least as levied by the states; this is explained further in chapter 7.

Second, the textbook descriptions of the subtraction and credit methods presented in chapter 3 obscure important differences between the two methods. This chapter explains that in its simplest form—what I call the naive subtraction method—the subtraction method is truly satisfactory only if the VAT is levied at a single rate on a comprehensive tax base. 1 Once multiple rates and exclusions from the tax base enter the picture, this system breaks down.

Some of the defects of the naive subtraction method can be remedied by adopting a more sophisticated version that allows deductions only for purchases on which tax has been paid. But even this sophisticated subtraction-method VAT, which is essentially equivalent to a credit-method VAT, functions satisfactorily only if levied at a uniform rate (with at most a zero rate in addition to the uniform positive rate). Given the likelihood that political pressure for multiple rates would be irresistible, this conclusion throws considerable doubt on the wisdom of enacting a subtraction-method VAT, such as the business transfer tax (BTT) proposed by Senator William Roth.As the Treasury Department concluded in its 1984 assessment of VAT: "While there are different forms of value-added tax and alternative

-71-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
The Value-Added Tax: Key to Deficit Reduction?
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen
/ 184

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.