Last week, White House economic advisor Paul Volcker said that a Value Added Tax (VAT) “was not as toxic an idea” as it had been in the past and that “if at the end of the day we need to raise taxes, we should raise taxes.”

Controversial as Volcker’s comments were, they have generated a great deal of interest in the new tax scheme, with Doug Elmendorf, Director of the Congressional Budget Office, saying that his agency has fielded “a lot of questions” about the VAT from members of Congress.

As the idea begins to pick up momentum-as it almost certainly will given the government’s inability to control spending-it is important that American taxpayers understand what a VAT is and how it operates. For this, we turn to Dr. Dan Mitchell of the Cato Institute:

– James Quintero