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Living in a VAT Post-Soviet country, I am not sure if that argument about "hitting harder the poor" is true, if VAT system is not specially aligned against the poor, which was the case in my country earlier times of Post-Soviet transition, but has changed recently. The thing about VAT is that it is multilateral, and applies to many types of business-to-business transactions as well to business-to-consumer, so all the suppliers in the chain pay their share, not only the consumer. And, given by pure numbers, the value provided by VAT paid by business is pretty significant. In some implementations (such as my country one), business share of VAT can not be less than final consumer's VAT, because consumer has paid VAT only once, while any producing business, was paying VAT for any transaction by any supplier. The argument about aligning VAT against the poor, is that, given corrupt government being in power, some business can easily avoid paying VAT, or pay only small percentage of it. This was (and, to some extent, still is) the case in my country (Ukraine), due to existence of so-called "VAT Refunds" scheme, which allowed many oligarchs to concentrate big amounts of value during 90s-00s.
The scheme is easy as using non-market practices such as paying less VAT than their competitors, and being not punished then due to law loopholes passed by cronies in the state legislation. The new governments, after 2014 Maidan revolution, being pressured by country's civil community, and also the international community, have started to remove many types of "VAT Refunds" scheme loopholes.
That's why many oligarchs already went bust, and many are going to, just because their enterprises are now required to pay their share of VAT, and can not survive competition in changed reality. So in reality, implementing proper VAT system requires powerful government, and also VAT does not survive lobbyism and cronyism. |
> So in reality, implementing proper VAT system requires powerful government, and also VAT does not survive lobbyism and cronyism.
This kind of kills the VAT being feasible here in the US. We have crazy amounts of lobbying and legal loopholes and while the US gvt is powerful, that's somewhat antithetical to the founding ideals of that.