America’s Tax System Must Be Improved

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America’s tax system is supposed to be based on fairness. We have established a progressive tax system so that, theoretically, each American pays an amount they can afford. Those without much disposable income pay very little, while those with money to spare pay a larger percentage of their income. This is a good basis for a tax system, but we can do better. Most countries use a value-added tax (VAT) in addition to a lower income tax. This essentially acts as a tariff on American exports, and by enacting a VAT of our own we could level the playing field.

There are currently over 150 nations that use a VAT.

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The United States has unfortunately entered into “free trade” agreements with many of them, but because of the VAT other countries have an inherent advantage. We can strike down tariffs and duties across the board, and a country with a 10% VAT will still enjoy a price advantage of 10% over their U.S. competitors.  Countries that use the VAT exempt exports from the tax, meaning their goods are relatively cheaper when they get to the United States. Meanwhile, American exporters receive no exemption. This distorts the market and hurts American industry.

One of the biggest complaints about the VAT is that it is a regressive tax, taxing the poor and middle class at a higher rate than the wealthy. This does not have to be the case. Other countries have successfully implemented the VAT because there are ways to offset the burden on lower earners, such as exemptions for food, children’s clothing and health related items. This may complicate the implementation of a VAT, but it is still much simpler and likely cheaper to administer than our current loophole-ridden system.

As unpopular as they are, taxes are a necessity for any nation. We have taxes to pay for things like schools, roads and police–things we have mutually agreed are needed for prosperity. With this inherent tie between a tax system and prosperity, we should aim to have a system that maximizes the benefits we receive. By implementing a VAT we can both get the revenue we need for government programs and help our industries that so desperately need assistance.

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