Much To Love And Hate Analysis

Gregory Mankiw said in his article, Much to Love, and Hate, in a VAT, that the American tax system is clearly inefficient and inhibits the economy’s ability to reach its full potential. Taxing consumption is better than taxing income, and a value-added tax does exactly that. The value added tax system (VAT) is a form of consumption tax. In short the VAT is attached to each stage of a product’s sale price. Thus, when a product or service is acquired a value tax is added to the transaction. The value added tax system obtains its revenue from the sale of goods and services minus any of the costs of materials used in the production that have already been taxed. For example, when a European manufacturer builds a car they are taxed on all of the supplies purchased for the …show more content…
With this money the government can improve funding to programs such as Social Security and Obamacare. Also, the value added tax could assist in the improvement of the countries fiscal problems and the federal budget deficit. Another benefit to the value added tax is that it hinders the creation of black markets. According to Jean Folger, black markets form because consumers want to avoid paying taxes on goods and services. With a value added tax in place companies have already incorporated the tax into the purchase of the product, therefore naturally passing the tax on to the consumers. For example, with a sales tax system the consumer pays for the purchase of a service or good. Therefore, if you purchase a service from a repairman and pay under the table, to avoid both parties paying taxes that revenue is missed. With a value added tax system the tax revenue would have been incorporated into the parts used for the service. In addition to the tax being incorporated into the product at every purchase it allows all the parties to bear the tax equally and not have it all fall on the consumers’