The VAT tax has been put forward as a soliution to the Federal governments's debt and deficit problems. The VAT or Value Added Tax is like a national sales tax and is used in a lot of European countries. It would solve a lot of problems, but its downside is that its regressive. It's a tax on consumption and as such taxes the poor as much as it taxes the rich. However, the poor can be subsidized in other ways, and there could be certain exceptions to the VAT tax like food and rent, for example. A VAT tax would tend to tamp down consumption which would tend to tamp down GDP because GDP in the US is 70% consumption. On the other hand tamping down consumption may not be such a bad idea as it would tend to increase savings and lead to a more normalized GDP among its various components. GDP is composed of private consumption plus gross investment plus government expenditures plus exports minus imports.
A STET tax literally Securities Transactions Excise Tax would tax every sale of a security, namely a stock, bond, swap or derivative. It would be salutary in that it would tend to slow down the pace of trading which these days tends to go at the speed of light. And it would generate a huge amount of money because there's a huge amount of money involved. It only makes sense that, if you're going to tax commercial transactions like buying a product in a store, that you should also tax commercial transactions like buying or selling financial products as well.
These two taxes taken together would get the US out of its doldrums of deficits and debts and restore financial sanity and probity to the nation. So why aren't we doing it? Well, why aren't we doing anything else? Why is every attempt at an intelligent solution to the nation's problems watered down, vitiated and eviscerated to the point of irrelevance? Because the corporate interests that run the government want it that way. One might assume that they want it that way because it's in their self interest to have it that way, but this might only be partially correct. They might think something is in their self interest which turns out to not be in their self interest in the long run. Alan Greenspan thought large scale investors would operate in their self interest in such a way as to regulate and preserve the system they were operating in. Only that didn't turn out to be the case. Instead, they operated in their perceived self interest in such a way as to virtually destroy the system.
Laissez faire capitalism has been the governing economic philosophy for the last 30 or 40 years. People have made decisions based on the perceived notion that unregulated free markets are the best thing. The problem was that the deregulation, which was so much sought after and then put into effect, ended up almost destroying the US in the financial meltdown of 2008. So I guess laissez faire capitalism turned out not to be such a good idea after all. So why are a lot of people including most Republicans insisting that we still follow that model? Well, perhaps because it is in their perceived narrow self interest. People will often do things that are bad for them over and over until they eventually wake up and stop bashing their head into a brick wall. The definition of insanity is doing the same thing over and over but expecting a different result. Some people eventually regain their sanity and start doing things differently.
So to restore fiscal sanity to the US government, the VAT and STET taxes might be a good place to start. Removing the cap on Social Security and Medicare FICA taxes would also be a good idea to restore those programs to financial health. Only the Republicans don't want to restore those programs to financial health; they want to get rid of them. Therefore, in their minds it would be better to let them get increasingly sicker until the government runs out of money and can't borrow any more. The Republican party wants to bankrupt the American government.
Republican philosophy in the last 40 years has been directly responsible for the US debt and deficit situation. Ronald Reagan quadrupled the national debt. George W Bush doubled it and set into motion ongoing deficits like the unfunded tax breaks for the rich and the unfunded doughnut hole in Medicare Part D, not to mention unfunded wars (two). These deficits he handed off to Obama in such a way that there was nothing immediately Obama could do about them. These are ingrained, ongoing deficits. Undertaxing in general has led to institutionalized deficits. Until the government gets its revenue resources in order, the deficits and increases in the national debt will go on ad infinitum. The Republicans would like to provoke a crisis in which entitlement programs like Social Security and Medicare would have to be cut back or abandoned. The alternative would be to cut back or abandon the military-industrial complex although this would surely trigger another depression. Just as World War II ended the Great Depression, military spending ever since then has been the primary source of whatever jobs program the US has. So the US must continue being a militarist nation in order to prevent its economy from totally tanking.
Restoring sanity to the economy would first require increasing government revenues and that means more taxation not less as everyone seems to demand. Less taxation is literally starving the Golden Goose not the beast as conservatives have characterized it. Inceasing government expenditures on civilian projects like infrastructure rebuilding while at the same time scaling down military expenditures would shift government's job creation function from military adventurism to civilian sound foundation building. It would be rebuilding the economy on a rock instead of continuing to add stories to a towering edifice built mainly on sand which will one day collapse under its own weight.
