Investor's Business Daily : About the VAT Tax, Robert Reich Is Right

Investor's Business Daily via RealClearMarkets ^ | 04/13/2010 | IBD Editorial

[SeekAndFind]

Taxes: Former Labor Secretary Robert Reich is about as liberal as they come. Yet even he gets the obvious truth of a VAT: When added to other taxes, it would fall hardest on the poor.

Clinton's labor guy is now comfortably ensconced as a professor at Berkeley. The nine books he has written have basically helped delineate liberal thinking since the late 1970s.

Yet while many in his party, the Democrats, now yearn for a value-added tax (in addition to our current income tax) as a way to raise money to pay down the estimated $12 trillion in deficits over the next decade, Reich is having none of it.

Appearing on CNBC, Reich laid out the goods: "I worry that because it is a kind of super sales tax, it's regressive," he said. "It does not take a bigger bite out of the incomes of the wealthy than it does out of the incomes of the poor, and therefore it is a step backwards toward greater tax regressivity, as is every sales tax."

We don't agree much with Reich on anything, but on this he's right. The VAT, so beloved by Democrats, would sock the poor and the middle class - 47 million of whom today pay no taxes at all on their incomes - with higher taxes.

Whether that's fair or not is a different question. But Reich is undoubtedly correct when he assails the VAT as a "hidden" tax. Since it's levied at each level of production, and not just on the final sale, the consumer doesn't realize how much he or she has paid in taxes.

[patriot08]

Obama’s got to pay for this somehow:

• $3.6 billion, matching the request, to expand and improve capabilities of the Afghan security forces

• $400 million, as requested, to build the counterinsurgency capabilities of the Pakistani security forces

• Afghanistan: $1.52 billion, $86 million above the request

• West Bank and Gaza: $665 million in bilateral economic, humanitarian, and security assistance for the West Bank and Gaza

• Jordan: $250 million, $250 million above the request, including $100 million for economic and $150 million for security assistance

• Egypt: $360 million, $310 million above the request, including $50 million for economic assistance, $50 million for border security, and $260 million for security assistance

• Pakistan: $1.9 billion, $591 million above the request

• Iraq: $968 million, $336 million above the request

• Oversight: $20 million, $13 million above the request, to expand oversight capacity of the State Department, USAID, and the Special Inspector General for Afghanistan to review programs in Afghanistan, Pakistan and Iraq

• Lebanon: $74 million

• International Food Assistance: $500 million, $200 million above the request, for PL 480 international food assistance to alleviate suffering during the global economic crisis

• Refugee Assistance: $343 million, $50 million above the request, …including humanitarian assistance for Gaza. Funding for the UN Relief and Works Agency programs in the West Bank and Gaza is limited to $119 million (Note: Gaza = Hamas)

• Disaster Assistance: $200 million to avert famines and provide life-saving assistance during natural disasters and for internally displaced people around the world, including Somalia, Zimbabwe, Ethiopia, the Middle East and South Asia

• Peacekeeping: $837 million for United Nations peacekeeping operations, including an expanded mission in the Democratic Republic of the Congo and a new mission in Chad and the Central African Republic

• Department of Justice: $17 million, matching the request, for counter-terrorism activities and to provide training and assistance for the Iraqi criminal justice system

[Alberta's Child]

Reich may be “right” in opposing the VAT, but his rationale is wrong. A highly regressive tax system would go a long way towards keeping government spending under control. Government spending gets out of control when most people in a jurisdiction don’t pay taxes — or THINK they don’t pay taxes.

[Oldexpat]

While the President talks about not raising taxes on the middle class and poor..his gang of liberals is talking up a regressive tax to increase govt revenue.
In CA..and other high sales tax states, a VAT would have an immediate impact on spending. It would automatically reduce sales tax revenue by the same amount that VAT removed from the state economy. It would be a disaster for state and local finances.

[bmwcyle]

Obama does not care about the poor.

[SeekAndFind]

Even with all the above listed spending they all ADDED UP TOGETHER BASED ON THE FIGURES YOU PROVIDED amount to a “mere” $12 Billion dollars ( Even New York’s Mayor Bloomberg is richer than that, and he isn’t even the richest man in America ).

Those are a mere pittance in realtion to the $3.8 TRILLON dollar budget we have. Not even one half of one percent of our budget for this coming fiscal year.

If you wanna cut cost, let’s focus on those areas that are REALLY EATING UP our budget.

[Cyber Liberty]

Since it's levied at each level of production, and not just on the final sale, the consumer doesn't realize how much he or she has paid in taxes.

This is very true, and I don't know why we are not hearing the corollary to that: Since it's applied at several levels of manufacturing, it's a tax on top of a tax. If something's value is increased by $1, the cost to the next stage will be $1.20 (assuming a 20% VAT). If the next stage also adds a buck, then the second tax will be based on $2.20, not the original two bucks.

This is the same principle as compounded interest, only it will be compounded taxes.

[Vaduz]

Any country have a flat tax ayatem and is it working?.

[SeekAndFind]

Any country have a flat tax ayatem and is it working?.

The closest I can think of is the prosperous former colony of Britain (now part of China) -- HONGKONG.

See this site for a description.

EXCERPTS:

"the tax on salaries is not flat but steeply progressive. There are four marginal tax brackets of 2 percent, 8 percent, 14 percent and 20 percent. I would prefer a single tax rate, for reasons I explained last November in "The Case for One Tax Rate." But any tax with a top rate of 20 percent is hard to fault."

"Unlike the United States, Hong Kong is not plagued with tax credits that create random spikes in marginal tax rates as the credits are phased out. But Hong Kong does allow charitable deductions up to 25 percent of salary income and a mortgage interest deduction up to about $13,000 (in U.S. dollars). Other deductions are allowed for adult education, care of elderly relatives and retirement savings plans."

"The Hong Kong tax system has one major advantage over even the most elegant theoretical alternatives. It has been tested for more than 50 years. It works."

EDIT TO ADD : Hongkong is arguably more prosperous than their former colonial masters, the British in terms of per capita income. This inspite of the fact that she has no natural resources to speak of.

[Vaduz]

Thanks the flat tax system looks better than what we have.