Fareed Zakaria’s first idea towards “Defusing the Debt Crisis” in the March 8 Newsweek was to institute a value added tax. While I supported his other two ideas (see previous two posts), I am at best uncertain on a value added tax.
Just because it is common in many other countries does not mean it will be acceptable here. It would seem an effective means to avoid underground workers, which may be less of a problem here than many other comparable economies.
Adding another layer of tax to existing taxes also misses a critical point: after a point the damage is less from the means of collecting the taxes than the percent and amount of the economy the government controls. Any dollar extracted from the private sector for control by the government sector, limits economic growth and real job creation. Government capital requirements will squeeze out private sector needs.
While I agree with Fareed’s other two proposals which serve more to restore some sense of balance and fairness and to reduce social tinkering, they are also revenue enhancers.
But the value added tax is much more complicated and does not address the real problem which is the relative size of the government, and its risk at smothering the wealth creation machine that made America the most prosperous country in the world in a very short period of time.