Martin A. Sullivan (Tax Analysts), Was the VAT a Money Machine for Europe?, 135 Tax Notes 143 (Apr. 9, 2012):

In 1965 there was not a big difference between the level of taxes in the United States and in Western Europe. Then the Europeans put their VATs into high gear.

Virtually nonexistent in 1965, Western European VATs had an average rate of 11% by 1976 and 20% by 2007. As VATs became increasingly prominent, overall tax revenues in Europe grew in tandem. Between 1965 and 2007, average total tax as a percentage of GDP grew by a stunning 11.6 percentage points — from 27.8% to 39.4% of GDP (Figure 1). Meanwhile, in the United States — the only developed country to avoid adopting a VAT — the overall level of tax grew by only 3.2 percentage points, from 24.7% to 27.9% of GDP.

Figure 1. Total Revenue as a Percentage of GDP, Western Europe and the United States, 1965-2007

The European experience is often used as an argument against considering a VAT in the United States. It would be a "fast track to a European welfare state," according to Daniel J. Mitchell of the Cato Institute (Will Republicans Hand the Left a VAT Victory?, The Wall Street Journal, Jan. 4, 2012). Even if that were true in Europe, why would it be true in the United States?

All Tax Analysts content is available through the LexisNexis® services.