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41 Tax Foundation's Tax Review 1 (1980)

handle is hein.tera/tafoutaxt0044 and id is 1 raw text is: (Tax Foundation's ) Tax Review The Value-Added Tax and Emerging Economic Policy By Leonard E. Kust This is the fourth time in 18 years that I have appeared at a Tax Foundation Conference to speak on the value- added tax. I suggest that this record demonstrates the persistence of the concept of a tax on value added and the growing importance of consideration and under- standing of the tax. It is now quite clear that we can no longer postpone the development of definitive views about the value- added tax. With the Chairmen of the Ways and Means and Finance Committees of the Congress both endorsing VAT and with Chairman Ullman introducing a bill (H.R. 5665) to enact it, on which hearings are now in progress, we can no longer temporize. We must understand the structure of the tax, its ad- ministration, how it is to be incorporated in our tax system and, most important in these critical times of economic uncertainty, the economic consequences of the tax. I will undertake to deal with each of these issues, but in terms of tax policy, it is the related issues of how VAT is to be incorporated into our tax system and its economic consequences that should command our ma- jor attention. History of the VAT In 1961 when I first discussed VAT at a Tax Founda- tion Conference, the idea was exotic and unfamiliar. There had been some isolated discussion of the tax prior to World War II. It had been proposed by the Shoup Commission for occupied Japan after World War II but was not adopted. An adaptation of VAT was enacted in Michigan as its Business Activities Tax, later re- pealed, and now, as we shall hear, again reenacted in a modified form. France had adopted the tax as a substi- tute for its turnover tax. Thereafter, the European Economic Community adopted VAT as a means for har- monizing its taxes within the Common Market; and by 1973 all of the member nations had substituted VAT for their existing turnover, purchase or sales taxes. But in spite of this impressive record of acceptance there re- mains, at least in this country, little real understanding of the tax and much misunderstanding. There has just been published an excellent study of VAT by Dr. Norman B. Ture, which I commend.I It should do much to correct the misunderstanding and add realistic understanding. I hope I can do some of the same. 'Norman B. Ture, Value-Added Tax: Facts and Fancies, Heri- tage Foundation, Washington, D.C., 1979. This Issue in Brief In this month's Tax Review, Leonard E. Kust analyzes the proposal by the Chairman of the House Ways and Means Committee for a value- added tax (VAT) to raise revenues lost by reduc- ing individual and corporate income taxes and payroll taxes. It is the consensus, Mr. Kust points out, that our prime economic objectives must center on control of inflation, an increase in savings and investment, and an increase in productivity. H.R. 5665, he suggests, at least is the beginning of a dismantling of the income tax and its inherent discrimination against savings and the use of cap- ital in production. This issue is based on remarks by the author at the Tax Foundation's 31st National Conference in New York City on November 28, 1979. Copyright 1980 by Tax Foundation, Inc., 1875 Connecticut Avenue, N.W., Washington, D.C. 20009, (202) 328-4500

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