The Washington Post is covering the VAT or value added tax and suggesting the concept is gaining support in Congress. Unfortunately WaPo characterizes this tax completely incorrectly as a national sales tax. It's not frankly, it is a legal method by which to address the trade deficit.
Fortunately Trade Reform has a better understanding of what a VAT really is:
The trade benefits would be substantial, and grow our economy. That is because the huge wave of foreign goods coming in would pay U.S. taxes through a U.S. VAT at the border. They would pay for our health care and infrastructure just as our goods pay for theirs. We would level the double-digit disadavantage of our paying their VAT-tariffs and them not paying ours.
Here is trade reform's main points on a VAT, which I repost here:
We could substantially dampen offshoring with a VAT because the disparity in VAT tariffs make our goods about 17% more expensive than they would be without a U.S. VAT.
(The VAT subsidy part of the trade equation comes from the fact that other countries can rebate their VAT when their domestic companies export, because those exports are not consumed in the source country. The rebated VAT there means their goods come here free of much of the tax burden and we don't tax them at the border).
There are problems. Especially for farmers and ranchers. Ag producers buy from monopolists, like crop seed and fertilizer and equipment. They also sell to monopolists (technically monopsonists) like Cargill, Tyson, Smithfield and ADM. The VAT tax is a new cost that farmers would have to pay, but would arguably be unable to pass on to the powerful buyers of their products. Farmers like income taxes because they don't pay tax if they have a loss year, but pay if they make money. Because farm income is so volatile, that is an advantage to income taxes.
So while it appears to be a regressive sales tax, oh not so fast, it is quite the tool to deal with trade deficits.
The Urban Institute is suggesting a VAT be used to fund health care reform. Now that is a concept worth examining for such a plan would greatly assist in reducing the regressivity of a VAT, all the while assisting the United States in reducing it's trade deficit.
[lobbyist alert! not to fund for profit health insurance corporations!]
In topics like this it's time to recommend TaxProf blog. He covers everything you wanted to know about taxes but were too asleep to ask.