Basics of a Value-Added Tax

Greg Mankiw's article in today's New York Times provides a good and simple explanation of a value-added tax. He notes that it could be very similar to the flat tax offered by Hall and Rabushka many years ago. However, the flat tax has been offered as a substitute for the current income tax and a value-added tax is usually discussed as a new source of revenue for the government. Any discussion in today's political environment will surely be about extra revenue to reduce the deficit rather than an alternative to the progressive income tax.