A VAT PROFILE: VALUE ADDED TAX AS A CANDIDATE FOR THE FEDERAL REVENUE SYSTEM

Value Added Tax (VAT) has been adopted by the European Economic Community (EEC) as a replacement tax system for diverse manfacturing and sales tax systems. Some economists and tax experts have proposed that the United States include VAT in the Federal revenue system to solve the nation's economic and fiscal problems. The VAT literature is composed mostly of economic treatises that debate VAT's compliance with the criteria for a good tax and VAT's capability to solve current economic problems. This dissertation departs from the main stream of VAT literature by employing comparative historical research methodology to establish the political ambience in which new taxes were previously adopted by Congress in the past. A common ambience for the enactment of new tax systems was discovered based on the five theories of tax change. Prior efforts to implement VAT were investigated to see if the common political ambience for tax change was present. Historical research within this dissertation also demonstrates that VAT's acceptance as a Federal tax system by Congress, if it occurs, will be due to political necessity (to solve a major fiscal crisis or to implement a new social program) with scant attention being given to VAT's compliance with the criteria for a good tax. It is also established that taxation is essentially a political action controlled by events and forces within the political arena and not by economists' theories. A simplified description of the VAT system is provided and a comparison on compliance with the criteria for a good tax is made between VAT and other Federal tax systems. The evolution of the Federal revenue system is developed. VAT implementation in foreign countries is examined to determine whether it provides a model for VAT adoption in the United States. VAT's encounters with the United States political system is described. Finally, scenarios are constructed to identify fiscal and political situations in which Congress will be impelled to enact VAT as a Federal tax system.