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Value-Added Tax. Answer the following questions: a. What is a value-added tax (VAT)? And how many countries have adopted VAT? b. Although the value-added tax has been proposed numerous times, the United States has never adopted one. Why do you think the United States is opposed to the value-added tax when it is so widely used outside the United States?

Approximately 150 nations worldwide use the Value Added Tax to boost their tax revenues (Beram, 2016). Products undergo a manufacturing-distribution-sales process before they reach the consumers. Governments impose a levy on the gross margin specifically at every point in the product development process above, which is commonly known as the VAT. Governments assess and collect the VAT at every point. Every manufacturer adds the VAT to the final price until the end product reaches the consumer. However, the United States does not use the VAT. In recent times, economists have argued that the United States should consider employing the VAT given that the country is struggling to deal with huge budget deficits. 

Although most economists have argued their case in favor of the USA adopting the VAT, past regimes have ignored such calls because the administrations are convinced that the levy is not a good fit for the country. In particular, Holcombe (2010) argues that adopting the VAT would inevitably introduce intergenerational inequities. The VAT is a regressive tax that subjects lower-income earners to increased economic strain. In simpler terms, not all Americans are wealthy enough to afford extra taxes without hurting their purchasing power and disposable income. As mentioned before, the full cost of the VAT falls on the consumers. The VAT taxes citizens and households based on the consumption volume as opposed to the income. Therefore, the poor Americans would undoubtedly bear a huge burden thereby increasing the income and wealth inequalities between the rich and the poor.


Beram, P. (2016). An Introduction to the Value Added Tax (VAT). United States Chamber of Commerce.

Holcombe, R. C. (2010). The Value Added Tax: Too Costly for the United States. Virginia: Mercatus Center.

by EssayRoyal, Dec. 8, 2019, 6:40 p.m.

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