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What Is The VAT Tax?

14 April 2010 2 Comments

Definition

The VAT Tax, or the Value-Added Tax, taxes a product at every stage of production.  It is similar to a sales tax except that it is not confined to the retail level and it will most likely be at the Federal level whereas sales taxes vary by state.

Is The VAT Coming?

Probably, yes.  A few reasons why:

  1. Budget deficits are spiraling out of control.  The debt levels are getting dangerously high.  A new tax is needed to raise revenues to get the federal government’s fiscal situation in better shape.
  2. “Everyone else has it” – The argument we heard about universal health care over and over about how America is the only major country without universal health care.  Well, Western Europe has the VAT, so shouldn’t America too?  Yes, this argument is stupid.

Who Else Thinks The VAT Is Coming?

There are some notable people predicting the coming of the VAT to America.  First up, Obama’s economic adviser Paul Volcker.  Volcker recently discussed the deficit issues and said new taxes will probably be likely and necessary.  He also mentioned the VAT as a possibility.

Furthermore, columnist and Fox News contributor Charles Krauthammer recently wrote an excellent piece essentially saying the VAT is 100% coming soon.  If you haven’t read this article, you need to. As Krauthammer says, “As the night follows the day, the VAT cometh.”

Problems With The VAT

The main problem is that it makes everything more expensive.  Not only is a percentage of the price tacked on at retail, but a percentage is tacked on at every level, including the manufacturer level, the wholesaler, etc.  These increases will be built into the retail price and then the consumer will see an additional VAT tacked on at the retail stage.

With an economy built on consumption, as the American economy is, this doesn’t bode well for economic growth.  Imagine the impact on sales in an industry such as boats.  Or, consider the impact to auto sales.  Or, the latest Mac computer.

Consider the impact to the poor who struggle to pay for every day items.

The even bigger issue here is the central planning of the economy that is being attempted by this administration.  Instead of letting the market work, Obama and the other liberal central planners would rather delegate who gets what through legislation on health care, the environment, the stimulus, unemployment benefits, etc.  When the bill gets too large (as it is), they find new areas to tax.  This is an absolutely awful direction for an economy, and it has never led to prosperity.  For some reason, Americans have forgotten that the best path to prosperity for the most amount of people is free market capitalism.  The current path will not lead to better lives for the poor or the middle class.  A standard of living adjustment is coming to most Americans and the above actions are major catalysts for this coming adjustment.

When Is The VAT Coming?

Well, obviously, the timing is politically driven.  Obama’s “debt commission” (they will save us!) will most likely announce the VAT as a recommended option for battling the debt.  This announcement will likely come after the 2010 elections.  I’m sure you can figure out why.

Other Notes About The VAT

  1. As Krauthammer explains in the article I referenced above, the VAT would be a great approach IF it replaced the income tax.  It’s insane to tax and penalize production and work; whereas, we should tax and penalize consumption.  That is a path to a healthy economy.  However, we’re not discussing replacing the income tax.  These new massive taxes are on top of all existing taxes.  Crazy, yes?
  2. If this moves forward as predicted, what happened to Obama’s promise not to raise taxes a single cent on 95% of the country?  This would 100% raise taxes on everybody.  Oh yeah, I forgot, words have no meaning anymore.  Ok, nevermind.

If you don’t want the VAT in 2011 America, you may want to make your voice heard in 2010, especially in November.

2 Comments »

  • Joe Plemon said:

    You covered a very pertinent topic well. Thanks for the link to Krauthammer…I always wondered how to spell his name. It is sad, but true that the VAT is coming. Not as a replacement for income tax but as a supplement. I love your observation about how the VAT is contradictory to Obama's campaign promises, "Oh yeah, I forgot, words have no meaning anymore. Ok, nevermind."

    One solution to our spending/debt frenzy would be the Fair Tax (similar to the VAT). A 23% Fair Tax would replace all other Federal taxes. I truly believe a fair tax would work, but I also believe it has no chance of passing. Why? It is too transparent and could not be manipulated by politicians and special interest groups. What a country we live in!

    Thanks for the informative post. Keep up the good work!