Value Added Tax (VAT)

A value-added tax (VAT) is a tax on the sales of goods and services to consumers.  However, unlike a traditional retail sales tax that is collected only on final sales to consumers, a VAT is collected from businesses at each stage of the production process.  Under the most common form of collection—the credit-invoice method—all sales by businesses are taxable, but firms are able to claim credits for all taxes paid on purchases from other registered businesses.  The net result is that business-to-business transactions are untaxed and the tax base is equal to the full value of the final sale to the consumer.

• Watch former TPC director Len Burman explain how a VAT operates. On Facebook   On Youtube

Revenue and Distributional Effects of a VAT

• Effects of Imposing a Value-Added Tax to Replace Payroll Taxes or Corporate Taxes, Eric Toder and Joseph Rosenberg
• A Value-Added Tax and Older Americans (slide show), Eric Toder
• Towards a More Consistent Distributional Analysis, Leonard Burman, Jane Gravelle, and Jeffrey Rohaly
• The National Retail Sales Tax: What Would the Rate Have To Be?, Bill Gale

See also:

• Revenue Impact of a 5-percent Broad Based VAT
• Distribution of Consumption By Income Percentile, 2010
   

The VAT and the U.S. Fiscal Crisis

• A Value-Added Tax for the United States: Part of the Solution, Bill Gale and Ben Harris
• A Blueprint for Tax Reform and Health Reform, Len Burman
  Do We Need a Value-Added Tax to Solve Our Long-Run Budget Problems?, Rudy Penner
• Is a VAT in our Future (slide show), Eric Toder

See also:

• Can Washington Embrace the Value-Added Tax? (NPR interview), Eric Toder
  

Further Reading

See posts about the VAT on TaxVox, TPC’s blog