From the Heritage Foundation. (H/T ECM)

Excerpt:

Revenue-neutral tax reform involving a VAT substituting for income tax raises a number of concerns, but its one advantage might be that it would reduce or even eliminate the net bias against saving. Such a reform would quickly begin to raise the level of private savings and the private saving rate.

The same cannot be said of adding a VAT to the current tax system. Adding a VAT would not have the same beneficial effects as substituting a VAT because, obviously enough, the anti-savings biases of the current system would remain intact.

Even more telling, a massive VAT-based tax hike would slash the after-tax purchasing power of individuals and families. As they adjusted to the new tax, an early casualty would be private saving.

[…]VAT proponents who seek massive new sources of revenue—whether in the short run to pay for President Obama’s spending surge or to address the nation’s unsustainable long-term fiscal imbalance—sometimes misapply arguments that have some validity in the context of a revenue-neutral tax reform. A good example is the argument that a VAT would increase private saving.

However, as an add-on tax, the VAT would not improve saving incentives as some suggest but would instead hammer private savings for an extended period as individuals and families slash their saving rates to sustain current consumption in light of the VAT’s higher prices.

I am pro-VAT, but only if it is revenue-neutral and is coupled with a cap on federal spending, indexed to inflation. A freeze would be better still!

What’s your view of taxation? Do you like a flat tax or the FAIR tax? Which taxes would you cut and which ones would you raise? What effect would it have on working families and their employers?