Tax Analysts Blog

VAT Rising

Posted on Sep 23, 2009

Last year many nations -- most notably, the United Kingdom -- cut rates on their value-added taxes to provide economic stimulus. But as the recession ebbs the clear trend around the world is toward increasing value-added taxes. A partial list of recent actual and imminent VAT rate hikes includes: Hungary (20 to 25 percent), Mexico (15 to 17 percent), Croatia (22 to 23 percent), Ireland (from 21 to 21.5 percent), Venezuela (9 to 12 percent), Latvia (from 18 to 21 percent, and again to 23 percent), Estonia (from 18 to 20 percent), Lithuania (from 19 to 21 percent), Israel (temporary increase from 15.5 to 16.5 percent), and Switzerland (from 7.6 to 8 percent).

Germany increased its VAT rate from 16 to 19 percent in 2007. In the U.K. there are reports that if -- as is likely -- Conservative David Cameron becomes Prime Minister next year, the VAT rate could rise from 17.5 to 20 or even 22.5 percent.

In the United States the VAT is getting increasing attention in the press. Senate Budget Committee Chairman Kent Conrad and former Fed Chairman Alan Greenspan have spoken favorably of a VAT as a means of reducing the federal debt. Most interesting is a recent paper co-authored by Larry Summers, currently President Obama's chief economist, saying that globalization is spurring a trend away from income taxes and toward consumption taxes like the VAT.

Still, even with back-breaking pressure from the federal debt, it is unlikely President Obama will propose a VAT anytime soon because of his pledge not to raise taxes on families with incomes below $250,000. But if he can get re-elected, a second-term Obama value-added tax is a good bet.

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