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April 22, 2010 -
Obama aides neither back nor bury value-added tax Not
dead yet. |
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The following was written in mid 2009, predicting that
the VAT idea would surface again after spending and debt got so out of
control that they would be looking for new ways to tax everybody. |
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is talk in Congress again about creating a national sales tax or
value-added tax (VAT), and perhaps trying to sell it by offering
some other tax breaks at first. The initial reports about this
idea are characterizing it as a "national sales tax", presumably
because most Americans have become accustomed to state and local sales
taxes already. That may make the idea seem less
frightening - but be very afraid of it. There are differences
between a VAT scheme and a retail sales tax system, but the basic idea
seems to be to seek a new way to raise lots of tax revenue quickly
without people fully realizing it. If the tax is built into all
prices (like a VAT scheme), rather than visibly tacked on at the time of
a sale, then it might appear to be less onerous because the new tax
burden would be spread widely over many transactions.
The Democrats may be reluctant to openly advocate such
new tax ideas until they find some formula to rationalize it which seems
to make it politically viable here, rather than political doom.
This really needs to stir up such a political firestorm of opposition
that the idea will be dead on arrival in Congress. |
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could be a huge tax burden on everyone, raising the cost of almost
everything we buy, while hiding the cost in the prices and making
businesses responsible for the collection of it, somewhat like a sales
tax system (but different - because the consumer doesn't see the added
tax cost, somewhat like the way that excise and other taxes are buried
in the prices of gasoline, utilities, cigarettes, etc.
That maintains the fiction that income taxes are not
being raised while dramatically increasing the actual tax burden on
everyone. Since many states and local areas rely heavily on sales
tax revenues, this also creates potential double taxation. There
are also "tax harmonization" risks which, in the
name of tax "farness" nationally, could be used to redistribute wealth
through federal political choices and undermine state and local
authority, competition, and voter control over spending decisions.
This is not an abstract risk. It is already established in
European social economic development practices.
There have been debates about this tax idea in the
past, as in 2005 when the Bush administration briefly considered it, but
the current wave of spending makes it a far more serious threat now,
even if it might be introduced at lower tax rates at first with various
tax breaks to make it seem less onerous. Instead of being
considered like a "fair tax" or "flat tax" alternative to the federal
income tax, the point of the present discussion is to make it an
additional tax burden to help pay for outrageous new spending. |
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summary, this could become a massive new tax burden on all Americans.
As with local sales taxes, the initial rate is likely to steadily creep
upwards over time, and rarely be cut back again. |
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Background about the idea of a US
Value-Added Tax (VAT) or "national sales tax" |
| May
28. 2009 - FreedomWorks -
National Sales Tax Chatter Draws Fierce Opposition |
| May
27, 2009 - The Washington Post -
Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look Think
of this article as a "trial balloon" by the Obama administration, and
note the close ties to their healthcare agenda and Rahm Emanuel.
They're trying to find ways to raise LOTS of tax money. Forget
about the myth that nobody under a certain income will pay more taxes.
VAT would dramatically raise taxes on almost everything which anyone
buys, regardless of income level. Americans for
Prosperity:
Be Very Afraid of the Obama Administration's VAT Trial Balloon
(May 27, 2009) - see also
Fox Forum on the same topic
FreedomWorks:
Are we about to get a national sales tax? (May 27, 2009) - note
the chart about how the tax burdens and government spending have grown
in Europe as they implemented VAT.
A VAT system is not the same as what the
Americans for Fair Taxation propose (Fair
Tax)
Heritage Foundation -
Beware the Value-Added Tax (May 16, 2005)
Daniel J Mitchell on National Review Online - Guest
Comment -
What's VAT? (March 1, 2005)
The idea of a VAT or national retail sales tax has
been floated at various times in the past, as in this
March 2005 testimony about potential tax law changes (including VAT
criticism) and this
2002 objection by the National Taxpayers Union or prior debates
which are on their website and others. |
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How does a VAT tax scheme work in
practice? |
| As a
starting point for research, try our custom search tools for
Taxes
and Incentives ,
International Business Law , or
Strategy Consultants on our
www.ShortListNews.com website
to see how international tax, legal, and management consulting
professionals describe VAT systems and tax compliance issues.
Their business clients already face complex VAT tax burdens and
regulations in many other countries where they operate. Just use
the above links and then look up VAT to find many presentations
on the topic from a business perspective. |
| As
another perspective, try our
Search: Europe tool at the same website and look up VAT.
This unique tool searches across the national economic
development websites of many European countries so that you can see how
they try to explain their VAT policies to potential business investors
in their countries. This is how they try to sell their VAT tax
policies to foreign investors from a government perspective.
(Domestic business investors have no choice in the matter, unless they
choose to invest abroad).
Note that the typical argument is that VAT is like a
sales tax - with the cost eventually passed on to the end user of the
product or service through a fairly complex system of VAT "inputs and
outputs". Unlike a sales tax, however, the VAT cost is buried in
the price charged to the end-user, rather than identified separately,
even though one can work it backwards.
Keep in mind that there are also very significant cash
flow considerations, because the VAT has to be calculated and paid at
each step along the way as products or services are produced, rather
than just after the final sale is concluded. In that context,
unsold product inventory becomes significantly more expensive, because
one has to also finance the unrecovered VAT costs until the inventory is
sold. The point is simply that this becomes a very complex
regulatory compliance process for all companies, so anybody who has
dreams of getting rid of the IRS and tax advisors had better think
again. |
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Keep in mind that there was pressure for VAT "harmonization"
across Europe to avoid having more favorable rates in some countries
than in others after the European Union was developed. This would
be analogous to having our federal government impose a standard sales
tax for all state and local areas in the name of "fairness", so that
there would be no tax advantages to favor one place over any other.
Of course, that defeats the intent of the Tenth Amendment
in the US Constitution, which served to preserve robust competition
among the states and local areas so that their governments would be more
directly accountable to voters and adapt to their local resource
constraints, competitive circumstances, and interests or special needs.
If the federal government "levels the playing field" across the entire
country, the net effect is to eliminate any competition which might help
to restrain tax increases.
One scenario would make state and local areas rely on
politically motivated federal apportionment of tax revenues, such as to
favor particular regions. This has been done in Europe to favor
depressed areas at the expense of successful ones as a subtle transfer
of wealth by social industrial policies.
It is therefore not surprising that VAT, like sales
taxes, tends to inexorably creep upwards or to be complemented by other
types of obscure taxes so that public political resistance is thwarted.
Regardless of what the initial VAT rate might be, one
can readily imagine that politicians would think that the US rate need
only be constrained by the highest VAT rates in other developed
countries so that we would not be at an obvious competitive disadvantage
in that regard. That leaves a lot of room for federal spending to
grow unchecked, with minimal state or local pressure to cut such
spending. Instead, the federal VAT revenue would become the honey
pot for which all the states and local areas would compete. If you
think pork spending is out of control now, imagine this scenario.
The net result could be enormous federal power and
control over all state and local spending decisions, which is almost the
exact opposite of the intention of our Constitution to preserve state
and local authority and individual responsibility, rather than
subservience to a powerful central government and political party rule.
This is not just an abstract tax policy debate. This is
the road to serfdom. |
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