The recent idea of President Obama and Democrats about adding a VAT (Value Added Tax) to help pay for health care is serious mistake. It will cause more job loss and end up generating less tax revenue than projected. Why?
VAT will add to the cost of American-made goods, but not to foreign-made goods. As a result there will be fewer American-made goods and more foreign-made goods purchased. This will cause American companies to make more products outside the United States and create higher unemployment.
If you want to tax goods, you need to tax foreign- and American-made goods at the same rate to make competition fair. A sales tax on ALL goods at the point of sale is the only way to retain fair competition.
Of course we already have unfair competition because we add the cost of health care and social security taxes into the cost of wages in most cases already. Then we tax corporate profits twice. This is one of the main reasons that American companies are already having difficulty competing with foreign-made products and are outsourcing labor to other countries where the wages and taxes are lower. The saying “we are shooting ourselves in the foot,” is apt. A VAT would effectively be shooting ourselves in the other foot.
If you want the United States to fall down economically crippled and barely move, putting a VAT on goods is a good strategy. I would think anyone hoping for the downfall of the US will cheer on the VAT. It is like throwing gas on a fire thinking that since it is a liquid, it will put the fire out. You just can’t indiscriminately add taxes, thinking they will help balance a budget, just because they are a tax.