28 May 2009

VAT is a Bad Idea for Americans

There was some discussion on the edges of the news yesterday regarding the possible implementation of what is called a Value Added Tax, or VAT. It is essentially a sales tax, and it would be paid by individuals and businesses. But the VAT would not be quite like your state or city’s sales tax rate; we’re talking double-digit sales taxes, all going to feed the federal coffers (which are empty and getting more and more so).

The push for VAT, it seems, stems from trying to find a way to pay for government-run, single-payer, universal health care. What a great reason to impose an additional tax burden!

An article from the Washington Post gives a hint as to what the VAT might look like in the US:

What would it cost? [Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel] argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments. In his 2008 book, "100 Million Unnecessary Returns," Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise enough money to exempt families earning less than $100,000 -- about 90 percent of households -- from the income tax and would lower rates for everyone else.
Please note in this portion of the article, there would seem to be a link between the 10 to 14 percent VAT and paying for Medicare-like health care, but that link is not explicit. More likely, this level of VAT would only replace the income tax of households earning less than $100,000 a year, and there’s no mention of lowering or eliminating corporate taxes. So, while this might look like some sort of tax reduction or simplification, it really is a tax expansion into a new realm, one where “tax creep” would be all too easy. Will we notice an extra quarter of a percent here and there as time goes by?

The article continues:

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.
So just 25 percent on everything we buy, every service we enlist would “do it all”. But note again that the income tax and corporate taxes would not be eliminated. That many would be “exempted” from income taxes is just a verbal band-aid; when the new universal health care program starts bleeding money, expect both to go up and up.

Also, the claim that a 25 percent VAT would mean that “everybody could see a doctor” is disingenuous. Everybody – or virtually everybody – can see a doctor now. Paying for that doctor’s visit is another story, but won’t you be happy to know that the 25 percent extra you pay for your whatevers will go toward paying someone else’s doctor bill? Won’t this kind of noble consumerism make us all feel just a little bit better about ourselves?

What interest in the VAT shows is the common knowledge that the US is rapidly running out of money. Even President Obama admits that “we are out of money now,” and that even before anything is “done” about health care. The last four months – the first four months of the Obama administration – has amounted to a spend and tax scheme to provide “stimulus” for our flagging economy, bailouts to companies which are “too big to fail”, and services which Democrats think everyone is entitled to. The next benefit is a universal, government-run health insurance scheme (not health care – that’s a different beast). But with projects deficits running into the multi-trillions – a number hardly imaginable in its enormity – the statist Democrat-run federal government must find some means to pay for it all. This is the only reason that the VAT has come up from the Democrat side. There is no intention of lowering the tax burden on anyone, there is only the hope that this additional tax will somehow stop the bleeding which 100+ days of Democrat spending has induced (on top of the bleeding already occurring because of the recession).

Therefore, unless and until the income tax and corporate taxes are abolished, the VAT should sit on a bookshelf in the Emanuel’s respective homes and collect dust. If implemented in addition to other taxes, in particular income and corporate taxes, the VAT would provide an easily adjustable, insidious tax on everything we buy. And eventually, sooner probably rather than later, folks earning under $100,000 a year would be paying income taxes again.

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