A Possible Scenario for the VAT

How America might get a VAT of its own:

First, Washington would have to demonstrate it could manage the public purse by reforming entitlements [...]. A tall order, but a necessary prerequisite or else voters would fear that entire six-point budget gap would be closed by tax hikes via a VAT. So, in the end, government spending needs to be dramatically cut. (Preferably, we would never need to get past this step.;)

Second, a VAT would have to completely overwrite the current complex and inefficient tax code. If not, voters would fear getting hit by both VAT and income tax hikes. A VAT can’t be an add on.

Third, every sales receipt in America would have to indicate the VAT penalty. But politicians love the hidden aspect of a VAT as way of duping voters. To them opaqueness is a feature, not a bug.

Fourth, the intended tax burden should be kept level at first. A pro-growth VAT — one that does away with corporate and investment taxes — might produce more revenue merely by expanding the economic pie.

My thoughts as a layperson? None of those four steps ever come about. No Democrat-controlled Congress will cut spending. It just isn't going to happen. I think, with the Tea Party movement, there is more popular sentiment to cut spending than in two decades, but it will take a strong GOP majority - kind of like the one Democrats now enjoy - to push through meaningful spending cuts. Plus, we have to elect the right kind of Republicans.

I'm hopeful that the tax code is reformed or eliminated. In fact, I woudln't necessarily be against a VAT if it replaced the income tax. Then it would basically act as a national sales tax. Of all the steps, this I believe is the easiest sell. Lots of Americans would love to see the tax structure revamped.

As for transparency of the VAT on receipts - well, I'm not holding my breath. Our fearless leader Mr. Obama isn't very trustworthy when it comes to transparency.

As for the level impact of the VAT - this again depends largely on who controls Congress and the White House. I suspect President Obama would work hard to keep taxes higher on business and high-income groups.

In short, I still suspect that a VAT would be added to the current tax structure, turning us into Europe West.