The Gibbons VAT proposal is based on the "destination principle." Under the destination principle, a good or service is taxed where it is consumed rather than where it is produced.
One of the major criticisms of a VAT is that it is regressive.
Ideally, a VAT should be applied at a uniform rate to as broad a base as possible.
Both the classic consumer VAT and the business VAT are imposed on business gross receipts from sales minus the cost of capital equipment, inventories, and services purchased from other businesses.
The consumer VAT is frequently described as a multi-stage sales tax.
The business VAT does not include the invoicing system.
On large purchases, the sales tax would be avoided - which is why the government would do what every other nation in the world has done: turn the sales tax into a VAT. For example, if a car is only taxed at the "retail" level, clever people would figure out how to buy at wholesale.
In Europe, the VAT discriminates among product categories.
Lastly, the greatest danger of moving to a consumption tax of any kind - whether a national sales tax or a VAT - is that it risks saddling the American taxpayers with what our European brethren have sadly suffered: both an income tax and a national sales tax/VAT.
He explained that the Administration "considers" the VAT to be a tax and, hence, that the proposal was subject to the President's "no new taxes" pledge.
In addition, the report was to aid policymakers in calculating the compliance and administrative costs connected with the VAT.
For example, if policymakers decided to alleviate the regressivity of a VAT by using multiple tax rates, the subtraction method for calculating the tax would not work properly.