So, what is wrong with a VAT?

The VAT is generally believed to be, from a policy perspective, a sound method of taxation. It is a broad based tax with a (hopefully) low uniform rate. The simplicity of the VAT allows a reduction in compliance cost (e.g. no more H&R Block) and accounting and it reduces market-distortion. The VAT is a broad based consumption tax that applies equally to every person that purchases products. For example, if the VAT is 10% on a piece of furniture then everyone from Warren Buffett to your poor old granny will pay 10% on that piece of furniture.

There are advocates that argue in favor of the VAT on both sides of the political spectrum. Many (primarily on the left) advocate that the VAT should be implemented in the US as a supplement to a "progressive income" tax system. Others (primarily on the right), believe that the VAT should only be introduced if it completely replaces the current income tax.

Some believe that a fundamental problem with the VAT, however, is that it is a tax generating (revenue) machine. An American VAT has the potential to greatly increase government revenue which will simultaneously allow for increased government spending. Those that tend to criticize the expansion of government tend to disfavor the VAT. Also, because of its broad base, even minor increases in the VAT percentage rate result in tremendous increases in government revenue.