Here Comes The VAT Tax
Start your engines. Nancy was talking about a Value Added Tax months ago and today the New York Times has released what appears to be the trial balloon article showing congress’ reluctance to have a VAT, but who may be forced to impose one because of out of control government spending, the $2.5 Trillion Senate Democrats’ health care bill, and the massive ballooning deficit. The entire article has some very good information, but I am just posting the relevant excerpts.
Nancy Pelosi being interviewed by Charlie Rose at the beginning of October, 2009:
Many See the VAT Option as a Cure for Deficits
Runaway federal deficits have thrust a politically unsavory savior into the spotlight: a nationwide tax on goods and services.
Members of Congress, like their constituents, are squeamish about such ideas, instead suggesting spending cuts or higher taxes on the rich. But with a lack of political will to do the former, and a practical ceiling to how much revenue can be milked from the latter, economists across the political spectrum say a consumption tax may be inevitable once the economy fully recovers.
“We have to start paying our bills eventually,” said Charles E. McLure, a tax economist who worked in the Reagan administration. “This strikes me as the best and most obvious way of doing it.”
The favored route of economists is known as a value-added tax, which is a tax on goods and services that is collected at every step along the production chain, from raw material to a consumer’s shopping bag. Similar to a sales tax, it generally results in consumers paying more for the things they buy. The revenues could be used to pay for health care or other social programs, or just to pay down existing debt.
Since Barry, Harry, and Nancy are following the European model of socialism, it will not be a surprise when they add this on top of the existing tax structure just as they are following the UK’s model of socialized medicine. If you still believe that a single payer health care system is not in the works, I have some very worthwhile bad assets to sell you.
To some foes of big government, though, the efficiency of the tax is also its fatal flaw. Conservatives worry that it enables the government to raise money with such little effort that it will encourage Washington to spend even more.
On the other hand, liberals are wary of value-added taxes because they are regressive. Poor people spend a higher portion of their income buying things than the rich, meaning lower-income people would be disproportionately hurt.
That is why countries often make other major changes to their tax code at the same time.
In Australia, the government imposed a value-added tax in the middle of an overhaul of the system in 2000, which included making the income tax system more progressive. “Many countries with VATs have income taxes that start out at higher income thresholds,” said James Poterba, an economics professor at M.I.T. Combining a broad-based VAT with a steeply progressive income tax, he said, avoids affecting the poor too much.
And here is the “take your medicine” quote.
Such political hurdles, along with a still-tentative economic recovery, make a consumption tax — or a tax increase of any kind — unlikely in the immediate future. But with economists like Kenneth Rogoff of Harvard predicting that federal tax revenues will need to rise by 20 to 30 percent in the next few years, politicians may hold their noses and decide this tax is the least worst option.
After everything we have seen of the Barry, Harry, and Nancy show, it is very hard to believe that they are here to help and not take every single dollar of compensation for our labors. I cannot wait to fire this “do the extreme level of harm ‘with prejudice'” congress in 2010.
