What’s The Difference Between A Value Added Tax And A Fair TaxBy Phillip Williams on April 10, 2010, 7:32 am Posted in Economy News
Experts have speculated that the non-partisan government accounting office may suggest implementing a value added tax to pay for the new health care program. European countries already use the value added tax to help them pay for many of the social programs. A Fair tax should not be confused with this type of tax. One will increase the tax burden of Americans if passed, the other will drastically decrease the power of the Internal Revenue Service.
Value Added Tax
A value added tax is a direct tax that is added onto the price of a book. If you have seen a book sold in both the United States in England, you will find that the prices listed frequently includes the VAT price. This type of tax is simply a sales tax that gets applied before the purchase of a product. A value added tax works differently from state sales taxes charged in many areas of the United States because the sales tax gets added when a consumer purchases an item. Like a sales tax, the value added tax is determined as a certain percent of the amount charged.
A fair tax is a tax on a person’s income. Unlike the current income tax, which gets lowered or adjusted based on a person’s ability to pay, a fair tax is simply a flat percentage of a person’s income. If a fair tax, also called at flat tax is set at 10%, a person who earns $100,000 per year pays $10,000 in taxes. A person who earns $10,000 conversely only pays $100. The difference is in the type of tax a flat tax and a value added tax is. Both types of tax systems do have one thing in common, everyone pays these taxes. If either system were adopted as a replacement for the current income tax system, it would simplify the tax code and bring in additional revenue.