Too Clever by Half

Some tax reform proposals, including the Hall–Rabushka flat tax and the Bradford X tax, split a conventional VAT into a household wage tax and a business cash flow tax. Supporters of the two-part VAT seek to preserve most of the VAT’s economic advantages while avoiding its regressivity and its politically toxic label in the United States. However, recent experience, culminating in the 2016–2017 discussion of the House Republican blueprint, demonstrates that the two-part VAT has faced severe political challenges due to misperceptions of its rationale and economic effects.