Sustainable Value Added Tax (SVAT)
Although people who are outside the labor force (e.g., retirees, those unable/unwilling to work, etc.) cannot contribute to their societal costs via income taxation, they do contribute to economic activity and tax revenues through consumption, as do the unemployed.
In short, those who are not working are still spending. However, without collecting some of their contribution in the form of taxation, the [shrinking] labor force is left to shoulder the financial responsibility. As the proportion of retirees rises, and more people exit the labor force for various other reasons, this burden becomes increasingly large. It is unfair that previous generations that got away with lighter taxation, and the successive generations’ labor force is left with the financial burden from worsening demographics and structural underemployment. Consumption taxes (such as a VAT) ensure that the entire population, regardless of age or employment status, is contributing their share. A sustainable VAT (SVAT) would do so while accounting for the externalities of transactionsIt can be said that people consume a vast amount of goods and services — sometimes excessively. It cannot be objectively judged what exactly constitutes excessive consumption. However, rising obesity rates, unserviceable amounts of consumer debt, large trade and current account deficits, overburdened landfills, and depletion of scare resources are all indicators of how much a country can consume compared to its capacity to produce, and its capacity to deal with its environmental consequences. They are in fact all serious issues, not only indicators. These issues also carry a real financial cost to a country and its economic, health care and financial systems. Consumption, though an essential component of the economic system, can have a societal cost in some instances. A VAT whose burden falls on the end consumers, can account for the costs of its externalities.
Henry George, while in principal, was against taxation aside from taxes on land/locations (and perhaps on other monopolies), recognized that the natural world we inherit has intrinsic and not only instrumental value. A broad value added tax prices in the true costs of consumption and its externalities to nature and society. A rate reduction could be applied for recycled or repaired goods, and a zero rate would apply to basic goods and their inputs, encouraging positive rather than negative externalities.In the current global trade regime, countries without a VAT have their exports unfairly penalized, while effectively subsidizing imports. By taxing consumption to relieve the tax burden on producers, domestic consumption is supressed to the benefit of exporters. All goods and services sold domestically are taxed in a VAT regime, while exports are zero-rated. However, because goods and services that are both produced and sold domestically are taxed equally under a VAT, it is also far less distortionary than trade tariffs. These consumption taxes also capture revenues from tourists and visitors, who use infrastructure with otherwise inadequate compensation to their host country.