I’ve written dozens of columns explaining why it would be a terrible idea for the United States to enact a value-added tax.
But that’s not because I think consumption taxes are worse than income taxes. Indeed, sales taxes and VATs are less destructive because tax rates tend to be reasonable and there’s no double taxation of saving and investment.
My opposition is solely based on the fact that we shouldn’t give politicians an extra source of revenue to finance bigger government. That would effectively guarantee that the United States would morph into a stagnant European-style welfare state.
In other words, I’d be willing to accept a trade. Politicians get a VAT, but only if they permanently abolish the income tax.
There’s no chance of that happening in Washington, but it may happen in Nebraska, as reported by the North Platte Telegraph.
If Nebraskans can’t agree on reform…, state Sen. Steve Erdman of Bayard has a sweeping answer: …Income and property taxes in Nebraska would be abolished — and the state sales tax replaced by a “consumption tax” to fund state and local governments — if a constitutional amendment
spearheaded by Erdman were approved by lawmakers and voters. …It would need “yes” votes from 30 of the 49 senators on final reading to appear on November’s general election ballot. …Nebraska’s state and local governments now collect a combined $9.5 billion annually in taxes, which would require a 10% consumption tax rate to replace, Erdman said. …If income and property taxes go away, Erdman said, all the state and local departments or agencies that enforce, set and collect them wouldn’t be needed, either.
Here’s some additional coverage from KETV.
Imagine not having to pay any property or income taxes in Nebraska, but there’s a catch you’d pay a new consumption tax on just about everything you buy, such as food and medical services, things that are not taxed right now. That is the idea behind a new constitutional resolution introduced by state Sen. Steve Erdman.
…He and nine other lawmakers introduced LR300CA on Thursday. The resolution would allow voters to decide whether to replace all those taxes with a consumption tax. It is like a sales tax and would be about 10.6% on everything, including services and food. …He said under this proposal, everyone would get a payment called a prebate of about $1,000, which would offset the cost for low-income families. Erdman said it would also eliminate the need for property tax relief and the state having to offer costly tax incentives to attract businesses. “This is fixing the whole issue, everything. This is eliminating all those taxes and replacing it with a fair tax,” Erdman said. “Nothing is exempt,” Erdman said.
I have no idea if this proposal has any chance of getting approval by the legislature, but Senator Erdman’s proposal for a broad-based neutral tax (i.e., no exemptions) would make Nebraska more competitive.
Which would be a good idea considering that the state is only ranked #28 according to the Tax Foundation and is way down at #44 according to Freedom in the 50 States.
In one fell swoop, Nebraska would join the list of states that have no income tax, which is even better than the states that have flat taxes.
P.S. The switch to a consumption tax would address the revenue side of the fiscal equation. Nebraska should also fix the spending side by copying its neighbors in Colorado and adopting a TABOR-style spending cap.
P.P.S. Unlike advocates of the value-added tax, proponents of a national sales tax support full repeal of the income tax. I don’t think that’s realistic since it’s so difficult to amend the Constitution, but their hearts are in the right place.
[…] The same principles apply at the state level. Policymakers should use consumption taxes to help finance the repeal of income […]
1. Abolish both the property tax (which taxes various improvements to land) and income tax and replace it with a 10-15% ad valorem land tax.
2. You forget to mention that the VAT is **really** at least 5 taxes combined into an omnibus supertax:
A) it is an excise tax since it is a tax on the value of inland goods and a customs duty to the extent it taxes imported goods;
B) it is a services tax, since it is a tax on services;
C) it is a land transaction tax, since most VATs out there also apply to real property transactions;
D) it is a tax on a tax, since VAT is added to government levies, fees and charges;
E) it is an intangibles tax, since transfers of rights and interests (eg restrictive covenants or devolution of patent rights) are captured in the tax base.
Astute readers will note that c, d and e are not “consumption” but species of investment (I buy land as a hedge against inflation, or to add to my investment portfolio). Astute readers will also note consumption (properly defined) is a flow; but VAT taxes stocks, not flows, and several items taxed by VAT are not necessarily immediately devoured or consumed. VAT is not a “tax” – it is several taxes combined into a pleasant sounding phrase (VAT), which hides and obscures the true tax base (see above).
[…] There are efforts in Mississippi and Nebraska to get rid of state income […]
[…] There are efforts in Mississippi and Nebraska to get rid of state income […]
[…] There’s also a proposal to get rid of the Nebraska state income […]
But it’s a bad idea getting rid of the local property tax for two reasons. It’s highly visible and hated by people. Also, you don’t want all the revenue going to the state-level revenue and then showered back to local governments. You want local government with their own tax source to fund their own activities. Government should be a neat layer cake.