A Value-Added Tax (VAT) is a levy that is factored into the prices of goods and services at every stage of production. By the time a product hits the shelf at your local store, its price already includes the tax. The VAT is popular in many other nations, especially those in Europe where the typical rate is around 20%. At such a rate, a $100 product would actually cost $120. While some products (often certain food essentials) might be excluded from the VAT, this varies by country. The cumbersome, arbitrary, and political nature of these exclusions is no small matter, but I will not delve into this topic at the moment (see Irwin Stelzer’s April 5 piece in the Wall Street Journal for more on this).
Ben Bernanke, Paul Volker and others have floated the VAT as part of a long term solution for the left’s current spending spree. Obama created a so-called “bipartisan fiscal commission” to examine the tax-and-spend problem instead of tackling it himself. I believe he favors a VAT but wants the idea to come from this (left-leaning) commission after the midterm elections.
When it comes to taxes, I favor a national sales tax (i.e., the “fair tax”) IN LIEU OF an income tax. Some view a VAT as a form of sales tax, so I am frequently asked why I so vigorously oppose it. There are many reasons, but I’ll cove the top three here.
First, the VAT is being suggested as AN ADDITION to the present tax system, not a replacement. During the 2008 elections, some shameless democrats charged that their republican opponents who favored REPLACING the income tax with a national sales tax were “supporting new taxes.” Of course, replacing one tax with another is quite different from adding a new one. We don’t need any new taxes.
Second, THE VAT IS A HIDDEN TAX. After a VAT is implemented, we would begin to think that things just cost more without realizing we are paying the tax every time we make a purchase. A VAT would be buried deeper than income, sales, and most other taxes because we would pay it indirectly. Even worse, it can (and will) be raised from year to year in a way that is less obvious to consumers than hiking income or sales taxes. It is no surprise that the VAT was introduced in Europe in the 1960s at a rate of around 5% and has risen ever since.
Finally, adding a VAT, like any tax hike, ignores the real problem—massive government spending. The need for any type of new taxes would be eliminated if Congress refused to feed the beast in the first place. We can address this problem in November.
I think Obama’s long term plan is to institute massive spending increases under the guise of a stimulus (already done) and then seek a “bipartisan compromise” that keeps most new spending in place while raising taxes, preferably with a VAT. However, adding a VAT to the present tax scheme legitimizes the current level of government spending through taxes that are higher, more complicated, and less visible. The alternative is clear—we should focus on SHARP SPENDING REDUCTIONS while CUTTING AND SIMPLIFYING TAXES.
Hey parnell, if a vat tax balances the budget, then what’s the problem? I thought you conservatives were all about fiscal responsibility?
A VAT wouldn’t balance anything, Wilber. Just take a look at the national debts and VATs in other countries and you’ll see. You can start with these links, but I suggest google it for yourself:
http://www.economicshelp.org/blog/economics/list-of-national-debt-by-country/
http://businesstraveldestinations.com/Business-Travel-Tips-and-Advice/Tax-Free-Shopping/VAT-Rates-and-Refunds-by-Country
The bottom line: WE MUST CUT SPENDING.
The VAT looks like a game-changer, because it is hidden. People would be saying how horrible businesses were for charging such high prices for everything. That plays right into the hands of the demagogues. I can only imagine the lobbying that would go on to try to gain exemption from the VAT for one’s product. The price and production of everything would be politicized.
There ain’t no such thing as a free lunch! When taxes are raised, we pay one way or another!
It is insane that our first reaction is always to raise taxes, never to cut spending. I read recently that if we whacked 40% out of the federal budget, it would take us back to what we spent…in 1998! Last I checked, things were pretty good in 1998. Or stated differently, are we getting 40% more services or even 40% better services from the gov’t since 1998?