We all know that Prez BO has BIG plans for BIG government programs that are going to cost bazillions of tax payer dollars. We also know that they will be unsustainable and that our country will be buried in debt forever.
Something I've been hearing about on talk radio and in some on-line articles is the "Value Added Tax" (VAT). This may be a way for Prez BO to fund his BIG plans. Nothing is set in stone and there are no definite plans to enforce a VAT, but we should all be aware that Congress is "talking" about it. This is really scary.
What is a VAT? The definition is:
Value Added Tax (VAT):
A tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer.
Heritage's explanation:
In simple terms, a VAT is a type of national sales tax. However, instead of being collected at the cash register, it is imposed on the “value added” at EACH STAGE of the production process.
A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer.
The Washington Post article below talks about the interest Congress may have for a VAT:
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909.html
At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."
The Heritage Foundation article below has a lot of information on the VAT, so if you have a few minutes, read it in it's entirety. I've included some excerpts.
Something I've been hearing about on talk radio and in some on-line articles is the "Value Added Tax" (VAT). This may be a way for Prez BO to fund his BIG plans. Nothing is set in stone and there are no definite plans to enforce a VAT, but we should all be aware that Congress is "talking" about it. This is really scary.
What is a VAT? The definition is:
Value Added Tax (VAT):
A tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer.
Heritage's explanation:
In simple terms, a VAT is a type of national sales tax. However, instead of being collected at the cash register, it is imposed on the “value added” at EACH STAGE of the production process.
A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer.
The Washington Post article below talks about the interest Congress may have for a VAT:
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909.html
At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."
The Heritage Foundation article below has a lot of information on the VAT, so if you have a few minutes, read it in it's entirety. I've included some excerpts.
http://www.heritage.org/research/taxes/bg1852.cfm
Although it is a relatively non-destructive way to collect revenue, a VAT would be a serious mistake for the United States. The only condition that would make a VAT acceptable is complete repeal of all income taxes and a constitutional amendment that prohibits Congress from re-imposing taxes on any type of income. But this is not a realistic option, which is why the VAT should be stopped.
If history is any guide, a VAT will have several adverse effects. Specifically, a VAT will:
Expand the cost of government. Countries with VATs have a much heavier total tax burden than those without VATs. Before the creation of VATs, the burden of taxation in Europe was not that much larger than it was in the United States. However, since the late 1960s, when countries in Europe began to adopt VATs, Europe’s aggregate tax burden has increased by about 50 percent while the U.S. tax burden has remained relatively constant.
Inadvertently increase income tax rates. One of the main arguments for the VAT is that it is a less destructive way to raise revenue. This is theoretically true, but irrelevant. In the real world, the VAT has been used as an excuse to increase income taxes as a way to maintain “distributional neutrality.” Indeed, income taxes in Europe today are higher than they were when VATs were implemented.
Slow economic growth and destroy jobs. A VAT undermines economic growth for two reasons. First, it reduces incentives to engage in productive behavior by driving a larger wedge between pre-tax income and post-tax consumption. Second, it facilitates larger government and the concomitant transfer of resources from the productive sector of the economy to the public sector, diminishing economic efficiency.
No matter how many steps there are in the production process, a fixed percent of the final price of the product would represent the value-added tax, just as a retail sales tax is a fixed percent of the final product price. However, unlike a sales tax, the cost of the VAT to consumers would be hidden. Unless politicians took the unlikely step of requiring retailers to state explicitly the portion of the sales price that is due to the VAT, consumers would be unaware of the tax.
We have German friends who come to America on vacation several times a year. When they come, they spend half of their visit shopping because the same things they could buy in Germany cost much less in the USA . For one thing, the euro is worth more than the dollar, but the other reason is that we don't have a VAT. It pays to shop here and take their goods back to Germany.
Keep your eyes and ears open to see if Congress tries to use this as a money grab. They have to do something, because there is no way they can fund things like health care without increasing taxes by taking drastic actions like VAT and Cap & Trade.
Although it is a relatively non-destructive way to collect revenue, a VAT would be a serious mistake for the United States. The only condition that would make a VAT acceptable is complete repeal of all income taxes and a constitutional amendment that prohibits Congress from re-imposing taxes on any type of income. But this is not a realistic option, which is why the VAT should be stopped.
If history is any guide, a VAT will have several adverse effects. Specifically, a VAT will:
Expand the cost of government. Countries with VATs have a much heavier total tax burden than those without VATs. Before the creation of VATs, the burden of taxation in Europe was not that much larger than it was in the United States. However, since the late 1960s, when countries in Europe began to adopt VATs, Europe’s aggregate tax burden has increased by about 50 percent while the U.S. tax burden has remained relatively constant.
Inadvertently increase income tax rates. One of the main arguments for the VAT is that it is a less destructive way to raise revenue. This is theoretically true, but irrelevant. In the real world, the VAT has been used as an excuse to increase income taxes as a way to maintain “distributional neutrality.” Indeed, income taxes in Europe today are higher than they were when VATs were implemented.
Slow economic growth and destroy jobs. A VAT undermines economic growth for two reasons. First, it reduces incentives to engage in productive behavior by driving a larger wedge between pre-tax income and post-tax consumption. Second, it facilitates larger government and the concomitant transfer of resources from the productive sector of the economy to the public sector, diminishing economic efficiency.
No matter how many steps there are in the production process, a fixed percent of the final price of the product would represent the value-added tax, just as a retail sales tax is a fixed percent of the final product price. However, unlike a sales tax, the cost of the VAT to consumers would be hidden. Unless politicians took the unlikely step of requiring retailers to state explicitly the portion of the sales price that is due to the VAT, consumers would be unaware of the tax.
We have German friends who come to America on vacation several times a year. When they come, they spend half of their visit shopping because the same things they could buy in Germany cost much less in the USA . For one thing, the euro is worth more than the dollar, but the other reason is that we don't have a VAT. It pays to shop here and take their goods back to Germany.
Keep your eyes and ears open to see if Congress tries to use this as a money grab. They have to do something, because there is no way they can fund things like health care without increasing taxes by taking drastic actions like VAT and Cap & Trade.
One reason I think Prez BO will like this type of tax is because it has been instituted in Europe. And we all know how much Prez BO is trying to turn us into a clone of Europe.
Auf wiedersehen
Given the vast sums of cash that VAT yeilds, it is almost a given that Obama and the Democrats are going to go for it. They will add it on top of the current income tax too!
ReplyDeleteYou are correct. Plus a VAT tax is a perfect way to rake in the dough. It is a "hidden tax" included in the price of the merchandise, so people won't even see it. Then the sales tax added to it at the time of purchase is going to be based on the price after the VAT. So much for not taxing people who make less than $250K.
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