The Consumption Tax (VAT and Pre-bate)

Value-Added Tax

Broad base with no exemptions. Five-year phase-in: 0.5% (Year 1), 3.0% (Year 2), 5.0% (Year 3), 7.0% (Year 4), 9.0% terminal rate (Year 5). Each step produces a one-time price-level adjustment of approximately 0.5–1.8pp CPI; the five-year schedule ensures no single step exceeds 3 percentage points.

The Pre-bate

$1,350/year ($112.50/month) per adult and $675/year ($56.25/month) per child under 18, calibrated annually to 9% of the federal poverty consumption threshold. Delivered via FedCard on the 1st of each month before the consumption period. Fully offsets the VAT on all consumption up to approximately the poverty threshold. A family of four spending $30,000/yr receives more in Pre-bate than it pays in VAT. The bottom 40% of households are net beneficiaries; the effective VAT rate is negative for them.

Phase-In Pre-bate Funding (Years 1–4). During the VAT phase-in period, the Pre-bate is funded entirely from collected VAT revenue (standard + luxury surcharge). In Year 1, the 0.5% standard rate plus 5% luxury surcharge generates approximately $0.08T in total VAT; the entire amount is distributed as Pre-bate, making every non-luxury household net positive from Day 1. A family of four pays approximately $165 in Year 1 VAT and receives approximately $720 in Pre-bate — a net gain of +$555. In Years 2–4, as the standard rate rises (3%/6%/8%), VAT collections grow faster than the Pre-bate obligation, and the excess begins flowing to the General Fund. By Year 5 (9% terminal), the Pre-bate settles at its permanent $0.40T level funded from the $1.47T gross VAT, with $1.07T net to the General Fund. The luxury surcharge (+5%) activates from Year 1 at the full rate regardless of the standard VAT phase-in schedule, ensuring the Pre-bate pool is always fully funded. No household is ever asked to pay VAT before receiving its Pre-bate offset. The Pre-bate is never means-tested, never tapered, and never reduced — it scales with the VAT rate, not with income.

Luxury Surcharge

+5% on: yachts and recreational watercraft over $250,000; private aviation (purchase, charter, fractional); jewelry, watches, and gemstones over $5,000; automobiles over $100,000 (indexed to 2.5× median new vehicle MSRP); art and collectibles over $25,000. At 9% base + 5% surcharge = 14% total luxury rate. Revenue: $40–60B/yr.

Macro-Governor Corridor

The standard VAT rate is adjustable within a 9%–12% corridor by expert panel determination under the macro-governor framework (Chapter 25). Primary trigger: the Healthcare Cost Brake. If VHA-E spending exceeds 16.8% of GDP, the panel may increase the standard rate by up to 1pp per quarter, maximum 12%. Pre-bate scales automatically with rate changes.

Scoring Endnote 7: VAT Revenue

Personal consumption expenditure (Year 10): ~$27.7T (68% of $40.7T GDP).

C-efficiency ratio: 0.55. Source: OECD VAT benchmarks. US broad base with no exemptions justifies above EU average (0.50). New Zealand (also broad base, no exemptions) achieves 0.96; 0.55 is conservative.

Standard VAT gross: $27.7T × 9% × 0.55 = $1.37T. Luxury surcharge: ~$0.10T.

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