A VAT is far superior to other taxes.

The burden a VAT places on existing wealth avoids three key pitfalls of a direct wealth tax: The VAT’s wealth tax is extremely efficient because it is very difficult to avoid or evade; it does not require explicit valuation of particular assets; and it taxes excess returns, which is not distortionary, rather than taxing all returns, which is. But while this wealth tax is progressive by conventional standards, because the distribution of wealth is skewed toward the top, the burden imposed by the VAT is substantially less progressive than that of a direct wealth tax with a high exemption. While the burden of a VAT on existing wealth is imposed immediately upon enactment through a decline in the purchasing power of existing assets, the explicit tax payments arising from future consumption of existing wealth accrue only over potentially long periods. Still, the present value of long-term revenue from the burden a VAT imposes on wealth is at least equal to—and may well exceed, under plausible assumptions—the 10- year (undiscounted) revenue yield of the wealth tax proposed by Senator Elizabeth Warren.

A VAT also has important efficiency advantages over other types of taxes. Because VATs do not distort saving, investment, or financial decisions, they are more conducive to economic growth than income taxes or wealth taxes are. Because of the unique crediting structure that they employ, VATs are easier to administer and enforce than retail sales taxes. And by using border adjustments that remove taxes on exports but impose taxes on imports, VATs are consistent with other countries’ tax systems and avoid creating distortions in international trade.