Should the US Prepare for VAT?

Any curious person visiting the US notes very quickly that it is one country that has rejected or avoided the imposition of the Value Added Tax (VAT). While not a very perfect replacement, the US citizens pay sales taxes which vary by state and do not end up in the coffers of the federal government. The reasons for this difference between the US and a majority of OECD countries have been debated but the main contention now is whether the US will consider the introduction of a tax designed in the format of the VAT.

And this brings me to this fine piece by Gregory Mankiw addressing the question but through the lenses of a dispassionate professional economist. Mankiw demonstrates easily that viewed from first principles, the taxes pretty much have the the same with the added advantage of making tax dodging more difficult. Not that this clear explanation would resolve the arguments by ideologues. Democratic-leaning professionals are concerned about the fact that a VAT is not sufficiently progressive as a tax even if they prefer to increase government revenues for entitlement programmes. On the other hand, Republican-leaning individuals would be  opposed to VAT for the reason that it would lead to an expansion of government even if it is much akin to their favored flat tax.

From the perspective of an economist, the resolution of the question of the burden, progressivity and the size of government are purely political questions. As a result, the introduction of the VAT will depend on which side makes the more convincing political argument with voters. All an economist can do is let them know what the consequences of any choice is.