VAT has a multitude of disadvantages---unpopular, increased tax hikes, and drives up fraud and budgets deficits.

Although the VAT would simplify the IRC and generate more revenue for the United States government, it is not a perfect tax system. It is commonly criticized as a regressive tax,^'" "tak[ing] a larger percentage from low-income people than from high-income people."^'^ Currently, the United States tax system is progressive, meaning that high-income people and businesses pay a larger percentage of the tax than low-income people and businesses.^'* Switching from a progressive tax system to a regressive tax system would change the balance of equities currently in place.^^' Changing to a regressive tax system would likely have substantial political ramifications because forty seven percent of tax filers do not pay federal income tax.^'* Washington politicians. Democrats and Republicans alike, will be hesitant to implement a tax system that will make them vulnerable in the next election.^" Historically, the VAT has been very unpopular, and foreign leaders who have enacted it experienced a backlash from their citizens.^*" Most notably, Japanese Prime Minister Yasuhiro Nakasone was defeated in his 1986 reelection bid months after he successfully implemented a VAT. The 1993 electoral defeat of Canadian Prime Minister Brian Mulroney is also credited to his passage of a VAT in 1991 .^*^ "Since the poor consume a higher percentage of their income than the well-to-do, they are necessarily going to pay more VAT as a percentage of their income than the well-to-do. There just isn't any getting around that fact."^*' The VAT is also criticized because its tax rate can be easily raised.^*'* Proponents of small government are concerned by the ease with which revenue with a low dead-weight cost can be raised under a VAT system.^*^ These critics argue that taxes will be easy to increase if they are insufficiently burdensome and that, to incentivize economic growth, rates need to be easily kept in check.^** Because many nations that have enacted a VAT continue to have budget deficits,^*' this argument has credence. "The deficits that remain year after year would lead to continuous calls for even higher taxes, which would lead to more fraud and bigger deficits."^^^ However, the fact that the VAT can easily raise revenue alone should not prevent its enactment. "Congress should end this cycle by simply restraining spending to historical levels and scrapping higher taxes, including the VAT."^^' Taxpayer fraud is another problem faced by nations that have enacted a Y^-p 290 theoretically, the VAT is designed as a self-policing tax.^" Because the total tax the government ultimately collects is the same, businesses have an incentive to make sure the previous businesses pay the correct tax so they do not get stuck with a higher tax bill.^'^ However, fraud still persists.^" In the European Union, Member states lose an estimated €60-100 billion per year due to fraud, primarily arising from the black economy, insolvencies, and 294 missing traders. The black economy represents economic transactions that occur with cash and go unreported.^'^ Accordingly, tax revenue is not collected on these transactions.^'* The black economy accounts for up to thirty percent of GDP in some EU Member States, and some studies show that enacting a VAT will drive more activities underground.'^'^Another source of fraud, insolvencies, results when a "supplier of the goods/services never accounts for the tax he has collected from his customer (due to his insolvency) and which the VAT identified customer then recovers."^'* Missing transfer fraud occurs when "taxpayer A charges VAT to taxpayer B and A never accounts for the VAT paid to it by B. B recovers the VAT paid to A on its VAT return."^" Other types of fraud exist as well, including invalid deductions of input tax and nonpayment of output tax.'"" These frauds will cost the United States money and could possibly lead to increased budget deficits."" Opponents of the VAT are also quick to point out that nations that have enacted the tax continue to have budget deficits.'"^ "If it passed a VAT, Congress would undoubtedly budget based on the expectation of receiving all the revenue it anticipates the tax raising."'"' However, it is unrealistic that the government will be able to collect all the money that is budgeted.^"" According to the Heritage Foundation, "When the revenue comes in short, as it surely would, the deficit would increase by the amount of the gap, and a substantial deficit would persist."''"' Although the average annual revenue shortfall of all Member States is 12 percent, some EU Members have a shortfall of up to 30 percent.^"* By contrast, in 2005 the United States had a twelve percent revenue shortfall.^"' • Many supporters of a VAT in the United States propose a 20 percent rate.^"^ Applying this VAT to the 2005 U.S. tax information, the United States would have generated $1.26 trillion in tax revenues, which would be a fifty percent tax increase for that year.^"' However, using the shortfall data from the European Union, the United States would have had a tax receipt shortfall of $ 156 billion (under the European Union average) and $390 billion (the percent amount that many nations faced).^'" "Annual shortfalls of these magnitudes would prevent a VAT from eliminating the deficit and lowering the debt."^" Furthermore, it takes a country several years to enforce properly the VAT after implementing the new system.^'^