America is broken. Regardless of partisanship, something needs to be done in order to fix the grave problems that face this once great country.
The deficit continues to swell, unemployment remains stubbornly high, and the U.S. cannot figure out how to add jobs or revenue to sooth either ailment. President Obama recently proposed a “jobs plan” that entails a mix of tax cuts, tax hikes on corporations and wealthy individuals, and federal spending on education and infrastructure. Given the current situation it would be prudent, if not necessary, to pass such a deal, but the likelihood of that happening is quite slim.
One solution, which I find quite interesting, though very unlikely, is the establishment of a Value Added Tax system. Under a VAT system, a tax is assessed on goods when manufactured, purchased by a store and, finally, when purchased by consumers. The VAT system is often referred to as a “European style tax” because it was introduced and plays a large role in Europe. It is not, however, uniquely European; more than 150 countries have some form of a VAT. The U.S. is one of the few industrialized nations in the world that does not have a VAT system. In addition, it is not difficult to institute a VAT system; on the contrary, it is fairly easy to administer and collect, and its structure makes avoiding the tax difficult, as it must be reconciled at every step. Alas, the hurdles that stand in its way are political and ideological.
As expected, there is much opposition, especially from the GOP, to not only the establishment of a VAT system, but also to any tax increases at all. According to a recent CBS News article, Chris Edwards of the Libertarian Cato Institute said, “I think America has prospered because the general level of taxation has been lower than Europe.” He went on to say that Cato “prefers spending cuts to new taxes” and doesn’t “think we should go in this direction.”
I couldn’t agree more: we do need to cut spending, but the last time I checked America hasn’t been all that prosperous. The Census Bureau recently reported that the U.S. poverty rate by percentage is the same as it was in 1993, and by number alone is the highest since the government began publishing reports in 1959. Moreover, the bureau also found that we have the lowest median income level since 1996, signaling that Americans have continued to earn less and less each year while prices of everyday goods are relatively higher. Surely, these are not signs of prosperity.
As the U.S. hurtles toward economic calamity, it must decide where and how to make up its shortfalls. The two prevailing solutions–raising taxes on corporations and the rich or cutting federal spending– are not enough to fix our problems. There must be a larger, more drastic change in the fundamental way in which America handles it issues. A VAT system would bolster the government’s revenue, giving it some breathing room while it, hopefully, pays some of its debt, addresses poverty and unemployment, and most important of all, examines its own spending habits. There is no quick and easy way to fix the problems our system has gotten us into. Now is the time to rethink the longstanding system. The road ahead will be tough, but if pursued it will viably ensure the sustainability of America.