Consumption Taxes Are Better
How a regressive tax can actually be progressive
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The VAT, or Value Added Tax, is a powerful and often misunderstood, revenue-generating tool. In America, politicians on both the left and right have derided the VAT for narrow political reasons. The rest of the world, on the other hand, has embraced its potential. I illustrate how the VAT works, why it is not truly regressive, and how it can be used as an alternative to income taxation.
Consumption Taxes
Consumption Taxes are exactly what they sound like, taxes levied on the things one buys or consumes. Consumption taxes come in three primary flavors, Excise, Sales, and VAT. Excise taxes are levied on specific kinds of goods, often to counteract negative externalities. Think taxes on cigarettes or taxes on sugar-sweetened beverages, as I discussed here.
Sales and VAT, on the other hand, are more broad-based levies on a wide variety of goods and services. However, unlike a Sales Tax, where tax is collected only at…
