Earlier this week, in a post about indirect taxes (and the possibility that companies are overpaying them), I wrote that while U.S. businesses certainly have enough on their plates in coping with sales and use taxes, they don’t have to worry about value added tax (VAT).

I may have spoken too soon.

VAT has never been a part of the tax landscape in the United States, though it’s a fixture of many fiscal systems around the world. But now the idea is gaining traction in some increasingly urgent discussions of tax reform in Washington.

Lawmakers are worried that proposals currently on the table (for example, imposing new taxes on employer-sponsored health benefits and sodas, as I noted here), won’t be enough to dig the government out of its enormous fiscal hole, let alone pay for President Obama’s ambitious health-care reform program. An article in Wednesday’s Washington Post quotes Sen. Kent Conrad, chairman of the Senate Budget Committee, as follows: “There is a growing awareness of the need for fundamental tax reform. I think a VAT and a high-end income tax have got to be on the table.”

A value added tax is essentially a kind of national sales tax, but it differs from your standard sales tax in that it’s imposed at every stage of production rather than at the point of final sale to the consumer. In its most common form, the tax is levied on the total value of sales of all companies at a constant rate (say 10 percent), but businesses can claim a credit for the tax paid by their suppliers of raw materials and unfinished goods. The idea is to tax the “value-add” at each step of the production process.

If you think that sounds like a lot of paperwork, you’re right. There are strong arguments to be made in favor of a value added tax, but simplifying companies’ tax compliance burden is not one of them. Any moves toward VAT are bound to run into stiff resistance from corporate taxpayers. ###