VAT would be just a gargantuan instrument for further subjugating Americans to government

A plan to tax everybody

Excerpts:

Corporations do not pay taxes; they collect them, passing the burden to consumers as a cost of production. And corporate taxation is a feast of rent-seeking — a cornucopia of credits, exemptions and other subsidies conferred by the political class on favored, and grateful, corporations. Because the income tax is not broadly based, it radiates moral hazard: Its incentives are for perverse behavior. The top 1 percent of earners provide 40 percent of that tax's receipts; the top 5 percent provide 61 percent; the bottom 50 percent provide 3 percent. So the tax makes a substantial majority complacent about government's growth.

Increasingly, the income tax is codified envy. A VAT is the political class's recourse when the resources of the minority that is targeted by the envious are insufficient to finance ravenous government.

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Because a VAT potentially taxes everything, it would be riddled with exemptions. This is because it maximizes the political class's opportunities for showing favoritism — by, for example, exempting certain "green" goods. It also widens that class's scope for the pleasure of being bossy. For example, it could reduce a VAT's regressiveness — like rain, a VAT falls equally on the rich and the poor, but the poor devote a larger portion of their income to consumption — by exempting most foods but not those that the nanny state disapproves: "Put down that sugary soda and step away from the vending machine!"

Money is time made tangible — the time invested in the earning of it. Taxation is the confiscation of the earner's time. Although some taxation is necessary, all taxation diminishes freedom. Adding a VAT without subtracting the income tax would constrict Americans' freedom much more than the health-care legislation does. Because the 16th Amendment will not be repealed, adoption of a VAT would proclaim the impossibility of serious spending reductions and hence would be the obituary for the Founders' vision of limited government.

Comment: Worthwhile read!

Explaining V.A.T. (Value Added Tax)

Europe's VAT Lessons: Rates start low and increase, while income tax rates stay high.

Excerpts:

A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.

VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate.

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In the U.S., VAT proponents aren't calling for a repeal of the 16th Amendment that allowed the income tax—and, in fact, they want income tax rates to rise. The White House has promised to let the top individual rate increase in January to 39.6% from 35% as the Bush tax cuts expire, while the dividend rate will go to 39.6% from 15% and the capital gains rate to 20% next year and 23.8% in 2013 under the health bill, from 15% today. Even with these higher rates, or because of them, revenues won't come close to paying for the Obama Administration's new spending—which is why it is also eyeing a VAT.

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.

Comment: Back in college (I majored in economics and finance), my econ profs were agog over the V.A.T. But they saw it as a replacement to the income tax. Current thought is that it would be in addition to! My view is that taxing consumption instead of income would be better for our nation (Thought: it would spur investment!).

"The Cover" for a VAT tax

The VAT Commission: Desperately seeking cover for tax increases on the middle class

Excerpt:

A couple of trillion dollars in new deficit spending later, President Obama yesterday signed an executive order creating a Bipartisan National Commission on Fiscal Responsibility and Reform.

Yes, that's really what he called it. And you wonder why Americans are cynical about politics?

Having proposed peacetime records for spending as a share of the economy—more than 25% of GDP this year and next—Mr. Obama now promises to make "the tough choices necessary to solve our fiscal problems." And what might those choices be? "Everything's on the table. That's how this thing's going to work," Mr. Obama said.

By "everything," Mr. Obama means in particular tax increases. The President vowed in 2008 that he wouldn't raise taxes on anyone earning less than $250,000 a year, but that's looking to be as forlorn a hope as peace in Palestine.

Mr. Obama's own recent budget proposal estimates that deficits will exceed $8.5 trillion over the next decade—even including revenues from the huge tax increases scheduled for next year and other new levies that aren't likely to pass. So the President and Democrats are desperately seeking political, and especially Republican, cover to go where the big money is by taxing the middle class. The commission is a bid for that cover.

Can Washington Meet the Demand to Cut Spending?

Excerpts:

Conservatives all my adulthood have said the American people were, on the issue of spending, the frog in the pot of water: The rising heat lulled him, and when the water came full boil, he wouldn't be able to jump out.

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People are freshly aware and concerned about the real-world implications of a $1.6 trillion dollar deficit, of a $14 trillion debt. It will rob America of its economic power, and eventually even of its ability to defend itself. Militaries cost money. And if other countries own our debt, don't they in some new way own us? If China holds enough of your paper, does it also own some of your foreign policy? Do we want to find out? And there are the moral implications of the debt, which have so roused the tea party movement: The old vote themselves benefits that their children will have to pay for. What kind of a people do that?

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The GOP itself should be going forward with its philosophy, with the things it's long stood for and, in some cases, newly rediscovered, and painting the broader picture of the implications of endless, compulsive high spending.

Comment: What's a VAT tax? Stands for Value Added Tax. It's the European way of burying taxes into the cost of everything!