A VAT to Slowly Boil the Frogs

Western Hero ^ | 18 April 2010 | Silverfiddle

[foutsc]

VAT's A Bad Idea!
Reason has the most straightforward explanation:

A VAT is a consumption tax which is levied at each stage of production based on the value added to the product at that stage.

Governments love it because they collect if from producers by permanently planting their fangs in the neck of every business (employer) in the nation.  Businesses simply passes the cost on to consumers (as they do the cost of all government taxes, fees, and regulations) so it can't be easily dodged.

Austrian School economists hate it because it adds cost and bureaucratic overhead to each stage of production, acting as a drag on economic activity (You try getting any work done with a vampire clamped onto your neck!)  For a more scholarly critique, see Eric M. Steib's treatise, Mises - The Folly of The National Sales Tax

Tax Reform is Too Important to be left to Democrats
Individual income tax accounted for around 45% of federal revenue in 2008, according to the Tax Policy Center.  It is the single largest source of federal revenue.  

We need tax reform, but the Democrats want to double the stupidity by adding this VAT onto our existing tax structure.  Perish the thought that government should instead simply spend less.  Liberals estimate a 10% VAT would be required just to pay for health care, so imagine what it would take to fund the government Full Monty (estimates are around 30% with the current tax code left in place.)

National Sales Tax, Flat Tax, Fair Tax, Whatever
I say scrap the current system and replace it with a national sales tax.  Sounds regressive, but exempting basic food staples would make it less so.  Think about it:  Rich people spend more money and they buy more expensive stuff, so they would pay much more that those who have less money.  You pay when you buy something and you are no longer penalized for saving and investing, which benefits our economy because those activities contribute to capital formation.

A Flat Tax and a Fair Tax have also been posited as an escape route from the inefficient bureaucratic snarl our politicians have created.   Finally, for the curmudgeonly hard core libertarians, Lawrence M. Vance explains how The Flat Tax is not Flat and The Fair Tax is not Fair.  So there!

What would it take to erase the deficit?
The Tax Foundation estimates everyone's income tax rate would have to double just to close the annual budget deficit (which would only hold the national debt steady, not reduce it.)  New rates would be in the neighborhood of 20% for lower income earners, shooting up to 80% for high income earners!

Liberals breezily remind us that this was the level of taxation before President Kennedy cut them, but that was the post WW II economy when we enjoyed global economic dominance and tax avoidance was more difficult.  This static model also assumes no one will alter their behavior due to these new burdens.  Would you continue on as normal if Uncle Sam took 80% of your pay?   

Doing nothing is not an option
The entitlement bubble is growing thanks to the pie-in-the-sky promises our liberal government must now make good on to the aging hippie generation.  Something's gotta give, and it will be us if we fail to elect more imaginative politicians...

[mylife]

VAT?
FUBO!

[Wissa]

As I understand it, overseas production wouldn’t be subject to the VAT.... only production in America. A retailer purchasing product from China would only have to pay the tax on the retail markup. Products produced in America would be at a competitive disadvantage because their products would cost more because of the VAT. The VAT is just another way of driving production out of the US.... every leftist’s dream.

[mylife]

Way to squash the American Manufacturing base

[Wissa]

Way to squash the American Manufacturing base

If it shows any signs of life.... club it a few more times.

[Man50D]

Vance's misrepresentations of The Fair Tax have already been debunked. Honk If You Oppose A Fairer Tax Fair Tax ping!

[Taxman]

I am not in favor of VAT. I much prefer the FairTax.

Both VAT and the FairTax are known, in WTO parlance, as “border adjustable” taxes. Both are imposed at the border on imports and rebated at the border on exports.

VAT, by imposing up to a 25% cost increase on already federal, state and local taxed products, is the major reason American products are not competitive overseas.

And, since the US has no border adjustable tax and low tariffs, foreign imports are advantaged when sold in the US.

US desperately needs a border adjustable tax, but VAT is not it!

Think FairTax!

[Principled]

Most people don't know that what you describe, "Products produced in America would be at a competitive disadvantage because their products would cost more..." is exactly what out income tax does.

Out income tax [FICA too] drives up the cost of goods we try to sell overseas. That dog won't hunt.

Our income tax is not "border adjustable" - meaning the cost of the tax is built into our exports. However, retail sales taxes or VATs are border-adjusted - so they wouldn't harm US mfg for such a reason. HOWEVER! A VAT would be in addition to our income tax which is NO EFFING WAY IN HELL.

We need to dump the income tax code and replace it with a border-adjusted tax that is easy, clean, and simple.

Indeed, there is a bill in Congress now with 66 cosponsors that will do so - a national retail sales tax - not a vat.

[ronnie raygun]

Remove all foreign aid, cut entitlements, defund the EPA and other agencies that think they are the boss instead of the people and oh yeah get rid of everyone in congress and leave zero alone in the whitehouse mumbling to himself until we throw him out on his a##

[K-oneTexas]

The FairTax isn’t perfect but it is a dang sight better than what we got and anything/everything the Dems can come up with.

Coupled with repeal of the 16th Amendment and Spending Reform.Pork Reform ... I think its a winner.

Plus, the American citizen can now decide when Uncle Sam gets any of his/her money.

[Bigun]

The problem is that we already have a functional VAT in the corporate income tax and it is NOT border adjustable!

[Frangibled]

I totally agree with you, Taxman! However, politicians are not going to surrender the power to the Fair Tax. At the moment I am weary beyond measure, and taxes are the least of our problems with the current administration. I could be wrong; but, I feel we have to cleanse the stable (House, Senate, and White House) and replace all of them who are not like thinking with new people who will listen to the people and undo the damage and then put the Fair Tax in place. Til we do that, we Fair Tax advocates are screaming into the wind to no purpose.

[o_zarkman44]

The Fair Tax is fair and equitable for all.

And government has to be made to stop additional spending, and actually cut spending by 10% across the board.

And replace the income tax with the Fair Tax. With the Fair Tax, everyone pays their share according to consumption.
Definitely we can’t leave tax collection decisions t o Democrats because they have no concept of keeping the check book in the desk drawer and not spending.

[CSM]

The single best thing about the VAT is that the LibTards can blame the “evil corporations” for raising prices and not just absorbing their “fair share” of the taxes.

[CSM]

I like the FairTax because it smacks every voter in the face, with every purchase, every day and it makes very clear the cost of government largesse.

[K-oneTexas]

Not really. You make purchases all the time anyway. Does the tax in those purchased (embedded and sales tax) slap you in the face now.

It is better to determine when you will be taxed (the FairTax) than to have the governments hand in your pocket before you even get paid (Income Tax).

[CSM]

No, the current tax burden does not “smack” the average voter in the face every day. Instead, their burden is hidden in the price of goods or via withholdings and employee matcching.

With the FairTax, every receipt would have the tax clearly printed and the effect on the price would be obvious. All it takes is a few of those transactional increases to be seen and then you would have many more folks on board for spending cuts.

That is why I SUPPORT the FairTax. It smacks every purchaser with every purchase.

[K-oneTexas]

I support it too. It’s not perfect but it is a dang sight better than the current monstrosity.

I wish there was a way to make it ‘tinker-proof’ so Congress doesn’t try to manipulate it after it was passed. Also a way to keep the rate down and make it impossible for Congress from making excessive rate hikes to fund their largess.