VAT solves inequality.

It is well-known by now that income and wealth inequalities have been soaring for the past half-century across the globe. Although some developing countries have seen a decrease in poverty and a rising middle class during that period, much of the world has experienced dramatic increases in within country economic disparities. In the United States, the growing concentration of wealth has been particularly pronounced, especially at the top end of the socioeconomic spectrum. While the details of this increase have been debated recently by experts, most agree that both income and wealth inequality have increased significantly.

One prominent obstacle to addressing U.S. inequality has been the fractured nature of the modern American fiscal and social welfare state. The combination of a highly salient federal system of direct and progressive taxation and a more shrouded social welfare state has led to a unique type of political cognitive dissonance that, in turn, has helped perpetuate the myth of the “overtaxed” American—a myth that has been exploited by anti-statist politicians and lawmakers for decades.

This fable has, in part, prevented the United States from joining the rest of the developed world in adopting a comprehensive national consumption tax such as a VAT. Whereas most other affluent nation-states have a VAT that underwrites robust social spending, the United States remains an outlier in terms of both its fiscal and its social policies. As a result, the United States is constrained in its ability to generate the large-scale revenues necessary to fund robust social welfare programs and thus address inequality. Dispelling the myth of the “overtaxed” American might be the first step toward a profound restructuring of American fiscal policy—a restructuring that could include a U.S. VAT to fund new social spending and expand existing antipoverty efforts.