In a recent column for the Wall Street Journal, I explained why Mitt Romney’s interest in a value-added tax is deeply troubling.
One of my key points was that the VAT is a money machine for big government.
But don’t believe me. Look at Japan, where the politicians see increases in the VAT as a way of financing a much larger burden of government spending. Here’s some of what is being reported by Bloomberg.
Noda reshuffled his cabinet last week, aiming to win support for doubling Japan’s 5 percent national sales tax by 2015… Japan’s finances are “getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P… Japan’s aging population is also weighing on Noda’s struggle to achieve fiscal health. Social-security expenses have more than doubled in two decades and will account for 52 percent of general spending for the year starting in April, according to a budget proposal the cabinet approved last month.
The key point in this excerpt is that the VAT is a substitute for entitlement reform. Without the VAT, politicians might actually reform the welfare state. But because of the VAT, they want to take the easy (but extremely destructive) route and boost the tax burden.
This is why I get so agitated about the threat of a VAT in America, as illustrated by this recent appearance on Larry Kudlow’s show.
By the way, you won’t be surprised to know that the fiscal pyromaniacs at the International Monetary Fund support a bigger tax burden in Japan. Here’s another passage from the Bloomberg story.
The International Monetary Fund has said a gradual increase of Japan’s sales tax to 15 percent “could provide roughly half of the fiscal adjustment needed to put the public-debt ratio on a downward path.”
Isn’t it nice that we give these international bureaucrats big tax-free salaries so they can run around the world pushing for bailouts and higher taxes.
[…] in 2012, I warned that the value-added tax (a hidden version of a national sales tax) was enabling bad fiscal policy […]
Oops, accidentally pressed send.
So the government no longer have the right to pry into my financials which they should never have been given the right through the income tax in 1913. With the flat tax, you still do not take that violation of privacy away, with the Fair Tax, you do.
Last but not least, just as you think the government have the ability to raise the Fair Tax, they can also raise the income tax. I do see what you say about the ability to raise more through a VAT kind of tax but in the end, the government we vote in is either something we can pull back with the mechanism in place or not. But this continual intrusion into our financial privacy has to stop. Besides, just doing away with the ability of the government to take away our lives by imprisoning or fining us for not filing our taxes is good enough for me to support the Fair Tax.
I support the Fair Tax because it takes away intrusion into my financial privacy and there is no paper work for the average worker. It also means that everyone automatically becomes an environmentalists as we will want to conserve and repair and also buy second hand goods.
So the government will no longer have the right to follow every
[…] politicians are confirming my argument. Here are some details from a new report in the Wall Street Journal. Japan’s parliament […]
[…] I’m not a Romney fan, and it irks me to defend good tax policy on behalf of someone who is incapable and/or unwilling to make the same principled arguments. […]
It’s amazing how IMF seems to encourage European-like VATs. I have lived in countries with VATs for half of my life, and from my perspective, VATs are shots of crack for an addict. Governments love them because they bring in a lot of money, but they never solve the underlying problems associated with governments that just spend too much money.
IMHO, humans in power are naturally corrupt, so this extends to governments. Politicans are allowed to determine how much money they make and give lucrative jobs to family and “contributors.” The whole system of government is corrupt around the world, and needs to be abolished and re-created one piece at a time, careful not to allow these “defects” to reenter the system.
Romney mentioning Ryan’s plan to replace the corporate tax with a consumption tax of some kind does not constitute a plan or even an “interest” in implementing a VAT on his part. You keep banging on this thing like he is out there promoting a VAT. He isn’t.
[…] New Evidence from Japan Shows Why Romney’s Interest in a Value-Added Tax Is so Troubling […]
The growth trendline is the endgame of prosperity – a simple geometric series. This is the simple arithmetic that the Western world voter does not bother comprehending – a group of voters that now seems to finally include the American middle class.
What is indispensable for America’s middle class — any middle class, or any group of people for that matter — in order to sustainably maintain its six times world average standard of living – I say “sustainably” as opposed to “fleeting” through redistribution, which confers very temporary benefits in exchange for quick to follow low-incentive decline – is a growth rate on par with the world average, i.e. a growth trendline of at least four percent annual growth.
That would require an economy that is at least couple of notches freer than when Bill Clinton left office, having presided alongside a Republican congress. That means hoping to FIRST undo American voters’ irreversible inebriation to twelve years of Bush-Obama Euro-statism – and THEN introduce some additional freedoms – at a time when the choice for the next four year cycle is between Obama and Romney. It’s laughable!
Does anyone really think this is possible? You are firmly in the grips of a European road to decline. To me, there does not seem to be a return from this position. I’ve seen this movie.
Like the drowning person, the American middle class will predictably pull its rescuer under: Capitalism — the only realistic environment for a developed nation to continue to ride a four to five percent annual growth trendline, and thus the only environment capable of preventing the middle class from being absorbed into the Borg of worldwide averagedom.
Alas, the American people, in a textbook self-destruction reaction, responded to the emerging developing world juggernaut challenge by… tugging the Greek boat with the pretty wooden horse past Ellis island. Out came HopNChange, the European welfare state. Hence, the classic vicious cycle of suicide personified.
As economic ideas on how to stay afloat are now down to the desperation of more redistribution, more central planning, more gimmicks that hope to trick exceptional people into serving the masses (as if the benefit of products they create is not already ten times the value of the taxes they pay) , more hopeless delusional coercion from the dustbin of socialism to force competent people to become sharing entrepreneurs, more shooting of the messengers calling out to declining incentives to produce precipitating declining competitiveness,…. one cannot help but sense that decline is near.
As voters keep sandbagging reality, the dam will break and one crisis or another will precipitate the panic under which punitive taxes will be imposed on a productive minority, while the less productive majority finally acquiesces to a VAT — a VAT that will feed the final guardians of the declined empire.
Like many others before them, Americans will become deadlocked into hope for a better future, but unable to let go of mediocre and ever declining welfare state benefits in a difficult environment where prosperity is converging to the world average.
This is how it ends…
Zorba, If you are a productive person, you will be hunted to the ends of the earth to work for me August-December of every year. I have hope that you will. You are greedy — and unlike me who have found happiness in a hippie life involving minimal participation in the economy – you are addicted to money and will do anything to get as much of it as you can — even if you can only keep the money you earn Jan-Jul for you and your family and are forced to turn your August-December earnings over to me (well, not directly to me, to the government I hired for a vote, who will squander your confiscated August-December earnings, but will finally give me about a month’s worth of your productivity. But heck, that’s still better than nothing).
I have hope that, being addicted to money, you will never discover the value of my more modest and relaxed hippie life, and will thus keep working. Money does not bring happiness — unless it is the money that comes from you– and after the hacking of waste, crony payments and misallocation—eventually some comes to me — so that my standard of living is not just 4x the world average but 6x.
But it will not affect my long term prosperity. I keep living, I keep hoping that I will maintain my 6x world average standard of living even as the value of what I produce is now down to 4x — now that I no longer have the same motivation to work for my healthcare, education and a basic retirement — since these things are now (initially – in the beginning phases of HopNChange) being given to me unconditionally. So the 2x deficit between the 6x world average prosperity I aspire to maintain and my slipping 4x production, will be made up by the money the government I hired takes from you, wastes half, squanders another quarter, and the small remainder comes to me.
This is how America became the most prosperous country in the world. There are divine reasons of destiny as to why it will stay so. Now CHANGE to European values, and HOPE that it will get even better.
More economic refugees on their way from Japan. Momentum is building for some environment to offer all these people some shelter — as voters of a declining developed world bring out the pitchforks in a last ditch suicidal effort to preserve their six times world average prosperity levels — alas, such moves will only further decrease incentives to produce and thus hasten the decline.
Don’t be part of the heroes trying to keep the Titanic afloat. You’ll go down….
The USA shouldn’t be paying the IMF. We also never need a VAT.
Atlas isn’t going to shrug without an adequate addition of disincentives.