How Would The VAT Improve Our Flawed Corporate Income Tax System?

Reforming the corporate income tax with a VAT would allow for economic growth and lower unemployment in the United States.

Economic growth remains slow in the United States due to our high unemployment, alarming debt, and the more recent student loan debt crisis. Amidst these economic woes, our government remains divided on many policy issues that could help to get our economy back on the road to recovery. However, there is one area where there seems to be a growing consensus between members of Congress and the Obama administration – corporate income tax reform.

Author Michael Graetz explains in his book, 100 Million Unnecessary Returns, that the corporate income tax system is very flawed. Not only does it create incentives for corporations to invest in non-corporate businesses and housing instead of corporations, but it also induces many distortions in corporate finance. Furthermore, the internationalization of businesses and the overall globalization of world economies has made is difficult to collect corporate income taxes, (100 Million Unnecessary Returns, p. 110).

These flaws can be remedied if the United States adopted the value-added tax (VAT). As the image below shows, the number of countries that use a value-added tax (shown in red) is overwhelming.

A VAT is a tax on consumption, as opposed to our current tax system, which taxes income, wealth, property or wages. Essentially, it is s a tax only on the “value added” to a product, material or service at every stage of its manufacture or distribution. It would not be applied to items such as food, housing and a number of other essential items. Additionally, a VAT would dramatically lower the U.S. income tax.

Furthermore, reforming the corporate income tax with a VAT would allow the U.S. tax rate to realign with international tax norms, which would be a huge benefit to us considering the fact that, without a VAT, the U.S. has highest statutory tax rate in the world.

In addition, adopting a VAT would increase federal revenue that could be used to pay down the current national debt and would encourage businesses to remain in the U.S. instead of off-shoring, assuring that more tax revenue is kept in the country.

The benefits linked to adopting a value-added tax are simply too great to ignore. Now is the time for action. Let your congressional representative know that now is the time to adopt a VAT. Send this article to five of your friends and ask them to do the same!

How Would The VAT Improve Our Flawed Corporate Income Tax System? | Economy In Crisis.


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