The worst thing about the VAT system is that it strangles economic growth.


Dave wrote:
Could you expand on that? It's been over 35 years, but I still remember
being surprised by an analysis in one of my economics courses that purported
to show that a sales tax had fewer adverse effects on resource allocation
than an income tax.

That would surprise me too. For one thing, a sales tax (unless
rebated... and the rebate is administered efficiently enough to at least
recoup the administrative cost... not the way the gov't usually works)
is regressive. It depresses consumption at all levels, and is most
noticable across the bottom of the pyramid, where the greatest number of
transactions take place.

OTOH some economic niches would seem like a pyramid with no bottom...
like the sail boat market... look at the total number of dollars spent
on new 30+ foot sailboats versus 20- footers. Not a common example!

... How would the analysis of a VAT differ?


A VAT is different because it is pushed to all levels of exchange in
every step of the manufacturing, distributing, and sales matrix. Every
one of these transactions is depressed, instead of just the final
sale... is the effect the same?

One (possibly) unintended effect is the boost to vertical integration of
business. The gov't imposes various restraints, or boosts, profitably to
a lot of businesses at many steps along the way, but do we benefit from
an across the board benefit handed to the big corporations? Is this
really the vaunted "free market" economy?

In NC we are in the first stages of passing a state lottery. I think
it's a bad idea, but is probably going to move forward anyway... so how
about a Federal lottery?

DSK