Widespread state VAT adoption paves the way for a federal VAT. Top-down solutions fail and crush individual state taxes.

If the federal government does enact a broad based sales tax, it will probably choose the VAT over the RST. The works of John Due, Charles McLure, Sjibren Cnossen, Ben Terra, Alan Schenk, and many others have laid the groundwork for such an eventuality. Also, the tides of history presently run in favor of the VAT. The recent enactments of VATs in Canada and Japan are the most obvious indicators of this fact.59 This being true, what effect would the adoption of VATs by the states have on the federal tax system? One can posit at least two divergent scenarios. It is possible that the states could head off the enactment of a federal VAT by staking out the VAT as their "tax turf." The states could be perceived as saying to the federal government that broad based sales taxation, whether VAT or RST, is their exclusive province. On the other hand, numerous state adoptions of the VAT could lead to widespread public acceptance of this hitherto little known form of taxation. This, in turn, could pave the way for public acceptance of a federal VAT. Which of these scenarios is more likely? It is uncertain. However, under either scenario the states would probably come out ahead of where they would be if the federal government adopted a VAT in an environment where there were no state VATs. This is because federal adoption of a VAT at a time when no state VATs exist might make it more difficult for the states to enact VATs of their own or even to enlarge the coverage of their existing RSTs.6