PrintAugust 16, 2010
Do We Really Need a New Tax?
Why would our politicians want to impose a newfangled tax (at least for America), called the VAT, that the Heritage Foundation says would give us "a stagnating economy, higher budget deficits, and fewer jobs for American workers"?
Washington Post columnist Charles Krauthammer has the answer. He calls the VAT "the ultimate cash cow" that will produce "a river of revenue" for the government -- a river of revenue, experience shows, that won't be used to reduce income taxes or the deficit, but will make more Washington insiders wealthy and provide funds to buy votes and keep our career politicians in office. As Forbes magazine puts it, "The hidden nature of the VAT means it consistently moves higher -- without taxpayers' knowledge." Republican House leader John Boehner explained on his website, "Unlike a state or local sales tax, the VAT isn't itemized on a receipt. This makes it that much easier for politicians to tighten the vise on pocketbooks and wallets."
That river of revenue explains why politicians and even business leaders are calling for the new tax. The river of cash will flow from what Europeans and many other countries have suffered for years: the Value Added Tax. The VAT is collected at each stage of production, rather than only at the retail level like state sales taxes. As Investopedia explains, "For example[,] when a television is built by a company in Europe[,] the manufacturer is charged a VAT on all of the supplies they purchase for producing the television. Once the television reaches the shelf, the consumer who purchases it must pay the VAT that applies to him or her."
France implemented their VAT as far back as 1954. As Krauthammer notes, the VAT isn't a small tax. It truly is a river of revenue from our pockets to those of our increasingly all-powerful government. "Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent." If we complain about 5% or 7% sales tax at home, the VAT is often three or more times as much.
In some European countries I've visited, the price of the goods was the price I paid. No VAT was shown on the receipt, but it was hidden in the cost. When I bought a coat for my wife or booked a ferry, the price listed was the price I paid. The VAT is easily hidden in the cost. If politicians want more money to spend, they have only to raise the VAT, and people will probably chalk up the higher prices to inflation.
In some cases, the cost of the VAT was listed in a corner of the receipt, and that sometimes allowed me to try to get a refund of the VAT at the airport. I say "try" because the office of tourist VAT refunds was often closed, or the bureaucrat who handled it was out to lunch.
Obama said he planned "to fundamentally transform the United States of America." He told Joe the Plumber he wanted to "spread the wealth around." Both of those plans require lots of money. With the Democrats in Congress refusing even to come up with a budget this year, they've shown they're committed to unrestricted spending. As Human Events puts it, "Never before -- since the creation of the Congressional budget process -- has the House failed to pass a budget, failed to propose a budget then deemed the non-existent budget as passed as a means to avoid a direct, recorded vote on a budget, but still allow Congress to spend taxpayer money." Lots of taxpayer money.
Warren Buffett and Bill Gates support the VAT. Fox Business reports that Berkshire Hathaway Vice Chairman Charlie Munger joined them in supporting the VAT, but he concedes that taxpayers have reason to worry. "The people that are against it are against it because they think it will work too well, that the politicians will get too much money and do too many dumb things with it, and there is a good deal to be said for that point of view." Yes, a great deal, to be sure.
Warren Buffett himself notes, "In the end we are not taxing enough, unfortunately, or we're spending too much, probably some of each." Shouldn't the answer be to reduce spending and taxes, not simply raise taxes to handle some increased spending? Of course, if we had Buffett's money, we wouldn't care how much we were taxed as long as we were left with a few billion for household expenses. But most of us sane Americans at lower income levels would prefer to keep as much of our own money as possible.
With our politicians' insatiable desire for more and more of our money, Congress and the White House will have to choose between cutting spending or raising taxes. Guess which option our drunken-sailor-spending Congress and White House will choose! They haven't seen a spending bill yet that they don't like, so we can look forward to some new, sneaky taxes. And there are few taxes as easy to hide from us and to raise in the dark as the VAT.
Allan C. Stover is a published author of books and articles. Visit his web site at www.allancstover.com.
