A post by Pat
Charles Krauthammer predicts the Deficit Reduction Commission (remember the Sparrow’s belch?) will recommend a VAT tax to cover the huge hole we’ve dug with entitlements. He thinks it’s been Obama’s plan all along. The VAT tax is a favorite of socialist governments. A national sales tax. Vulture vomit.
Here’s a Fortune write-up about VAT
VAT Trap: The inevitable fix for the deficit
It’s not an option Americans understand, or ever hear debated much. In fact, most folks probably never heard of it. And if they had, they probably wouldn’t want it, since it’s the bulwark of an economic system alien to the American model — the social democratic economies of Europe.
But the sheer scale of the expected numbers makes it practically inevitable that the U.S. will soon adopt a big VAT. It’s the only vehicle capable of raising the money to cover the gigantic projected increases in spending and deficits.
Briefly, a VAT resembles a sales tax passed in the end onto the consumer at the register. But the government collects most of the money during the stages of a product’s manufacture. Since manufacturers are writing the checks, it’s an extremely efficient, virtually fraud-free way to collect money.
But it’s never gotten much support in the U.S. for two reasons. First, it’s a regressive tax: Low-earning families pay a bigger portion of their incomes than the wealthy. And second, the VAT — first introduced by a French civil servant in 1954 — has fueled the rapid growth of government in France, Germany, and even Japan. In fact, no other country spends the kind of money we’re planning to spend without a VAT.
Obama will sign a new huge entitlement into law tomorrow and then lecture us before the end of the year about being fiscally responsible.
If you love America you will throw your money into a BIG BLACK VAT HOLE.
In the abstract, I would like to have a VAT replace the income and capital gains taxes. My reasoning is this: America’s problem is too much consumption, too little production, too little investment. This leads to debt bubbles, which the government addresses by excess liquidity, which leads to asset bubbles (such as real estate), followed by a crisis. This can’t go on. Taxing a thing discourages that thing. So if we must tax, we’d do better to shift away from a tax on production (income tax) and investment (capital gains tax) towards a consumption tax (VAT). This would encourage us to move back to balance and sustainable growth.
Also, the elimination of income/capital taxes would free you from constant government surveillance of your income and assets. Imagine no withholding and no 1040.
Of course, we know my dream is politically impossible. Realistically, a VAT tax would be in addition to all existing taxes.
However, Obama promised that nobody except “the rich” would pay more taxes, which would seem to rule out a new tax. But he immediately violated that pledge with the cigarette tax. Everyone now knows Obama’s campaign promises were lies. Still, a new tax would be politically awkward.
I went to Europe 11 years ago. What I saw then was consumers paid a VAT at the register on high ticket items and services only. But as this post suggests, one of the reasons why things are so expensive sometimes is due to the VAT that was collected in the manufacture of products, and is included in the base price that consumers pay. So the VAT that consumers see is a little “icing on top” of the VAT that’s already been collected before they even see it.
BTW, they’re quite greedy in Europe about their VATs. We were just leaving the UK, waiting at the gate at the airport when I learned from somebody that it was possible for foreigners to get a rebate on the VAT they paid before they left. There was a desk at the airport for that. I asked an airline rep. where the desk was. She told me, and it was back before we went through security–I was caught in a catch-22. We were entitled to a rebate, but you had to know that before you went through security. We were not allowed back out so we could collect. I didn’t begrudge it much. When I looked at my receipts after the trip, the VAT we paid wasn’t much, probably around 10 GBP. It’s hard to remember now.
The thing that struck me in Europe was that the VAT was the only sales tax they had. If your purchase was under 50-100 (whatever currency you were paying in) you just paid the base price and that was it. There was no sales tax tacked on like there is here for every single purchase, no matter how small it is. Maybe things have changed. Back when we went everyone was still using different currencies.
in canada as of now you pay a VAT like tax on everything no matter the cost and in places like montreal an added city tax. the way it works for foreigners is that you get a refund of the VAT ONLY on big ticket items- i think it was items costing 50 dollars or more EACH, not cumulatively.
the thing about europe was- everything just cost a hell of a lot more. the prices reflected all the taxes and such of businesses and manufacturers already built into the price. they taxes are there- you just don’t see it.
on top of the sales taxes a visitor would see, countries like sweden, with cradle to grave socialized care, used to tax their upper brackets something like 80% ( it didn’t work- the wealthy who of course had the money to do it- fled the country and yes most of ABBA left! they recently repealed their wealth tax.). MA upped just about all it’s taxes and fees over the past few years desperately trying to keep romneycare afloat, after a pre-romenycare surplus, as the tax base dwindles and people and businesses flee the state.
if even sweden gets it finally…
makeshify –
I had the same experience several years ago in Argentina. The line was horrendous – it was either miss my flight or get my VAT money back. Well, I decided it was time to leave, so they kept my money!
In some European countries, it’s as high as 21%, and they still have crappy healthcare. You know this VAT or whatever name they want to call it is a bunch of malarky. It’s a way to take away from us honest working Americans.
We should do away with the income tax, and have a flat tax for all working citizens, plus businesses pay a flat rate tax as well. I bet that would take care of all of the deficits. At least, when I heard about and how it explained to me sounded pretty good.
Why is it that folks continue to vote for these idiots is beyond me.
“Value Added Tax” What disingenuous nonsense: even the name of it is absurd.
Well, how do you feel about the Fair Tax http://www.fairtax.org/ ? It’s a lot like a VAT… which will do nothing but hurt the economy if we’re going to continue to pay the income and capital gains taxes. Either go to a “consumption-based” tax, or stick with the stifling income tax… but not both. We the People have to ensure that it happens by doing a couple of things… first, we need to get people elected who will vote to repeal Amendment XVI (Income Tax). Once you get rid of that stifling thing, you can consider replacing it with FairTax or a VAT. When you do this, however, you must exempt some items… basic food (unprepared), primarily… and give an allowance for some amount related to clothing.
[…] Tammy Bruce, Fortune provides a little primer on what a VAT means to you. It’s not an option Americans […]
I love to listen to Charles – and 9 times out of 10 he’s right. Beware all, VAT will be coming soon to a neighborhood near you.
However, I hope this is his 10th time ;-}
Hear me, G-d!
Here’s VAT in action: Americans can buy a Parallax Propeller chip (8 processors on single chip, very cool, hook one up to your old analog tv…) for $7.99. In EU land, they are sell for $28 or more. And they have no hope to get them cheaper.