Moving beyond the cheap parlor trick of government paying taxes to itself, the next question is whether it is politically feasible to tax every element of personal consumption. Paul’s VAT from the Tax Foundation’s $2 trillion estimate to about $1.5 trillion.
Put another way, ending this shell game reduces the annual yield of Sen. TPC estimates that sensibly removing these phantom taxes reduces the VAT base by almost a quarter. At the federal level, the government is simply paying tax to itself.” The TPC goes on to add that taxing state and local governments under a VAT would also have to be offset by federal rebates so that those taxes can’t plausibly be counted as new revenue either. But the TPC analysis points out the obvious absurdity of this: “inclusion of government in the tax base has no effect on real federal spending or deficits. But a closer examination of the Tax Policy Center’s VAT analysis proves just the opposite.Īccording to the Tax Foundation, Senator Paul’s VAT would include government spending in the VAT base. The Tax Foundation specifically claims that a VAT could actually raise about $2 trillion a year, far above our $1.1 trillion estimate. The rightwing Tax Foundation has since claimed that CTJ understated the revenues that Rand Paul’s VAT would raise by a huge amount, citing a 2012 analysis from the Tax Policy Center (TPC) for support. We estimated that this would translate into a $1.2 trillion revenue loss in the first year-and a $15 trillion budgetary hole over the next decade. Yesterday, a CTJ blog post estimated that Paul’s VAT would likely raise about $1.1 trillion a year if fully implemented in 2016-far below the $2.3 trillion in annual tax cuts that would result from other components of Paul’s plan. This question is of vital importance in evaluating Paul’s plan because if his tax cuts add huge amounts to the budget deficit, there’s no way he will be able to keep his campaign promise to balance the federal budget.
Rand Paul (R-KY) announced the broad outlines of his plan for restructuring the federal tax system yesterday, a number of research groups have weighed in on the question of how Paul’s proposed Value Added Tax (VAT) would work-and, critically, how much revenue such a tax could raise.
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