Tax Reform Consequent upon an Embedded Single-Rate Vat Just Might Prevent Injustice While Revivifying a Geriatric Uncle Sam

Abstract

Economists and legislators have proposed many theories and plans for overhauling the corporate tax system (and the U.S. tax system as a whole); however, this Article argues that any viable proposal should begin with the enactment of a value added tax (VAT).

As a result of the IRC's unworkably complex corporate section, the United States economy has been hindered by high compliance costs and the loss of business overseas. Overall, a substantial federal VAT is the best option in terms of compliance and administration costs as well as reducing opportunities for federal tax evasion. But merely placing a VAT on top of the existing system would merely send us in reverse by further increasing the variable and substantial fixed costs of administration and compliance. A mere changing of the marginal rates or deduction rules would be insufficient to deal with the systematic problem caused by the yawning federal deficit and the arcane IRC. A VAT rate set too low would impose substantial costs per dollar of additional revenue. Thus, Congress should enact either a federal VAT (15%) capable of significantly reducing the federal deficit or none at all.