>http://www.foxnews.com/politics/2010/04/22/obama-expresses-openness-new-value-added-tax/

In some ways a VAT is actually a step in the right direction, as long as it replaces one or more existing tax(es) and isn't simply an additional tax:

- I'm a big believer in taxes being in-your-face visible, so you know how much various governments are confiscating. VATs usually replace hidden taxes

- VATs tend to be better for businesses, as they are applied only to the value they add i.e. the difference between the costs of their inputs, and their revenues. Essentially, although you tax your customers and remit that VAT to the government, you get to write off all the VAT you have paid to your suppliers. The taxes a VAT replaces are often applied against a company's entire revenues. For example, when the GST was introduced here in Canada, it replaced a hidden 13.5% tax on manufacturing (not services): http://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28Canada%29 . This helped Canadian manufacturing become more competitive internationally and reduced its arguably "unfairly large" domestic tax contribution.

- In theory, there is no net effect on the final consumer (who can't claim the GST they pay as an input credit). In a perfect world, the extra VAT they pay is offset by lower prices due to the more efficient and less distorted taxation applied to the businesses that supply the goods and services. In practice there are some significant distortions:

- Governments typically exempt some categories from VAT e.g. food
- During a transition to a VAT, there is a temptation for businesses to not pass their reduced costs on to consumers, and just blame the government for the increased bottom-line costs consumers see. In a perfect world, competition would make any such companies toe the line and reduce their prices like their competitors

Here in BC we're switching to a different VAT regime on July 1, so this topic has a lot of local mind share.