LETTER TO THE EDITOR: An argument for a national value-added tax

Most people are fairly familiar with the adage, “Nothing is for certain except for death and taxes.”

Indeed, I recognize that, as a citizen, it is essential to contribute to society in the monetary form of taxes – as distasteful as that may be for many of us!

Surely, many of the readers here can sympathize with the sticker-shock of property taxes every year; who wants to pay for land they already own?!

However, my main qualm (as I’m sure other readers feel) about taxation and tax codes in general is that, often, all parties involved aren’t necessarily pulling their weight. The knee-jerk reaction to hearing about tax cuts for anyone from low-income or to the wealthy and/or major corporations is usually, “Why should they get a cut, when I’m working my fingers to the bone?”

In order to fully understand, it is important to examine the effects of taxation as studied in “Tax Policy for Economic Recovery and Growth” as researched by the University of Kent from 2009. The authors of this scholarly article do a particularly good job of boiling down what sorts of taxation spur the most long-term economic benefits for nations seeking to not only catalyze, but to sustain, growth.

In short, their findings most strikingly point out the following:

1. Personal income taxes are harmful to growth because they are progressive (aka, the tax bracket conundrum). This form of taxation also discourages savings since the income that you would normally put into savings is taken away.

2. Corporate income taxes are harmful to growth because they discourage investment in capital and productivity improvements (think about how many times we all go to a certain major chain store where there are 30 registers and only five people working!). This also assumes that companies aren’t shifting their money around to offshore accounts and other tax havens to hide income.

3. Higher taxes on property transactions and property ownership discourage growth by hindering labor mobility, as well as discouraging companies to invest in real estate as a means of capital.

4. Perhaps most importantly, consumption taxes (VAT) can affect the real value of wages, but are otherwise seen as a non-discouraging factor to savings and investment. Strikingly to me, a value-added tax also ensures that we all pay our “fair share,” since it is a flat tax on goods, and therefore, nobody is paying more or less than the next person.

Sounds pretty good, huh? Now comes the part that I know nobody will want to hear, since it becomes the “middle-class” burden. The conclusion on personal income taxes: Tax cuts at the high end will spur the most economic growth.

Additionally, lowering the amount that low-income earners pay into Social Security is also shown to be effective in economic growth because it increases their disposable income, as well as gives them incentive to work. I know, I know: “Aren’t the lower class the ones who reap the most benefits of the Social Security program?”

However, lowering their federal income tax would not really help, since they don’t pay that much in the first place, so, the money has to come from somewhere.

These are the main points in the article, and of course, the authors detail many other intricate methods of encouraging growth in particular sectors of the economy based on tax credits and incentives for investment in particular fields.

Indeed, death and taxes cannot be escaped, unfortunately. I know that, especially as a lifelong Delawarean, we are all probably pretty averse to any sorts of sales tax. However, these findings make me curious about moving our economy forward. A VAT such as the EU and UK implement is shown to be quite effective in generating government income while, at the same time (and most importantly to me), fairly applying an equal tax rate for all. As a middle-income worker, I know the results above are disheartening because it seems like we bear the brunt of taxation in this scenario, but this more or less is just the surface appearance because of the phrasing of “high/low-income tax cuts.”

Of course, all of what I’ve written hinges on a critical component: all of us have to be willing to pull our own weight.

Jeffrey Haycraft

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