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Archive for the ‘VAT’ Category

Regular readers know that good fiscal policy takes place when government spending grows slower than the private economy.

Nations that maintain this Golden Rule for extended periods of time shrink the relative burden of government spending, thus enabling more growth by freeing up resources for the productive sector of the economy and creating leeway for lower tax rates.

And when countries deal with the underlying disease of too much spending, they automatically solve the symptom of red ink, so it’s a win-win situation whether you’re a spending hawk or a so-called deficit hawk.

With this in mind, let’s look at some interesting new research from the Heritage Foundation. They’ve produced a report entitled Europe’s Fiscal Crisis Revealed: An In-Depth Analysis of Spending, Austerity, and Growth.

It focuses on fiscal policy over the past few years and is an important contribution in two big ways. First, it shows that the Keynesian free-lunch approach is counterproductive. Second, it shows that the right kind of fiscal consolidation (i.e., spending restraint) generates superior results.

Here are some excerpts from the chapter by Professor Alberto Alesina of Harvard of Veronique de Rugy of the Mercatus Center. They look at some of the academic evidence.

The debate over the merits of austerity (the implementation of debt-reduction packages) is frustrating. Most people focus only on deficit reduction, but that can be achieved in many different ways. Some ways, such as raising taxes, deeply hurt growth… The data show that austerity has been implemented in Europe. However, with some rare exceptions, the forms of austerity were heavy on tax increases and far from involving savage spending cuts. …spending-based adjustments are more likely to reduce the debt-to-GDP ratio, regardless of whether fiscal adjustments are defined in terms of improvements in the cyclically adjusted primary budget deficit or in terms of premeditated policy changes designed to improve a country’s fiscal outlook. …Other research has found that fiscal adjustments based mostly on the spending side are less likely to be reversed and, as a result, have led to more long-lasting reductions in debt-to-GDP ratios. …successful fiscal adjustments are often rooted in reform of social programs and reductions in the size and pay of the government workforce rather than in other types of spending cuts. …tax increases failed to reduce the debt and were associated with large recessions. …growing evidence suggests that private investment tends to react more positively to spending-based adjustments. For instance, data from Alesina and Ardagna and from Alesina, Favero, and Giavazzi show that private-sector capital accumulation increases after governments cut spending.

The basic message of the Alesina-de Rugy chapter is that bad outcomes are largely unavoidable when nations spend themselves into fiscal trouble, but the damage can be minimized if policy makers impose spending restraint.

The Heritage Foundation’s Salim Furth is the editor of the report, and here’s some of what he wrote in Chapter 3, which looks at what’s happened in recent years as countries dealt with fiscal crisis.

Tax austerity is very harmful to growth, while spending cuts are partially replaced by private-sector activity, making them less harmful. …Estimating growth effects on private GDP, the difference between tax and spending multipliers grows predictably. A two-dollar decline in private GDP is associated with every dollar of tax increases, but spending cuts are associated with no change in private GDP.  …fiscal consolidation that relied 60 percentage points more on spending cuts was associated with 3.1 percentage points more GDP growth from 2009 to 2012, when average growth was just 3.3 percent over the entire period. In other words, a country that had a fiscal consolidation composed of 80 percent of spending cuts and 20 percent of tax increases would grow much more rapidly than a country in which only 20 percent of the consolidation was spending cuts and 80 percent was tax increases. The association is slightly stronger for private GDP.

Salim then cites a couple of powerful examples.

…the difference between Germany’s 8 percent growth from 2009 to 2012 and the 1 percent growth in the Netherlands is largely accounted for by Germany’s cut-spending, cut-taxes approach and the Netherlands’ raise-spending, raise-taxes approach. The U.K. and Italy enacted similarly-sized austerity packages, but Italy’s was half tax increases while the U.K. favored spending cuts. Neither country excelled, but over half of the gap between the U.K.’s 3 percent growth and Italy’s negative growth is explained by Italy’s tax increases.

By the way, it’s not as if Germany and the United Kingdom are stellar examples of fiscal restraint. It’s just that they’re doing better than nations that traveled down the path of even bigger government.

Regarding supposed Keynesian stimulus, Salim makes a very important point that more government spending seems positive in the short run, sort of like the fiscal version of a sugar high.

But that sugar high produces a bad hangover. Nations that try Keynesianism quickly fall behind countries with more prudent policy.

Government spending boosts GDP instantly and then crowds out private spending slowly. The incentive effects of taxation may take effect over several years, but they are permanent and especially pronounced in investment. If anything, this recent crisis shows how brief the short run is: Countries whose spending-focused stimulus put them one step ahead in 2010 were already two steps behind in 2012.

There’s a lot more in the report, so I encourage readers to give it a look.

I particularly like that it emphasizes the importance of properly defining “austerity” and “fiscal consolidation.” These are issues that I highlighted in my discussion with John Stossel.

Another great thing about the report is that it has all sorts of useful data.

Though much of it is depressing. Here’s Chart 2-9 from the report and it shows all the countries that have increased top marginal tax rates between 2007 and 2013.

Portugal wins the booby prize for the biggest tax hike, though many nations went down this class-warfare path. Including the United States thanks to Obama’s fiscal cliff tax increase.

The United Kingdom is an interesting case. It raised its top rate by 10 percentage points, but then cut the rate by 5 percentage points after it became apparent that the higher rate wasn’t collecting any additional revenue.

We should give credit to the handful of nations that have lowered tax rates, several of which replaced discriminatory systems with simple and fair flat taxes.

Though it’s also important to keep in mind where each nation started. Switzerland lowered it’s top rate by only 0.4 percentage points, which seems small compared to Denmark, which dropped its top rate by 6.7 percentage points.

But Switzerland started with a much lower rate, whereas Denmark has one of the world’s most punitive tax regimes (though, paradoxically, it is very laissez-faire in areas other than fiscal policy).

Let’s look at the same data, but from a different perspective. Chart 2-10 shows how many nations (from a list of 37) raised top rates or lowered top rates each year.

The good news is that tax cutters out-numbered tax-hikers in 2008 and 2009.

The bad news is that tax increases have dominated ever since 2010.

Many of these post-2009 tax hikes were enabled by a weakening of tax competition, which underscores why it is so important to preserve the right of jurisdictions to maintain competitive tax systems.

And don’t forget that tax policy will probably get even worse in the future because of aging populations and poorly designed entitlement programs.

Let’s close with some more numbers.

Here’s Table 2-5 from the report. It shows changes in the value-added tax (VAT) beginning in December 2008.

The key thing to notice is that there’s no column for decreases in the VAT. That’s because no nation lowered that levy. Practically speaking, this hidden form of a national sales tax is a money machine for bigger government.

But you don’t have to believe me. The International Monetary Fund unintentionally provided the data showing that VATs are the most effective tax for financing bigger government.

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I’m a supporter of a single-rate tax regime, especially if there’s no double taxation of income that is saved and invested.

That’s why I like the flat tax.

But I’ve expressed concern about the national sales tax, even though it’s basically the same as a flat tax (the only real difference is that the flat tax takes a bite out of your income when it is earned, while the sales tax takes a bite of your income as it is spent).

The reason for my skepticism is that I don’t trust politicians. I fear that they will adopt a sales tax, but never replace the income. As a result, we’ll wind up like Europe, with much bigger government.

And also much more red ink – even though politicians claim tax hikes and new taxes will lead to balanced budgets.

I’m not just being paranoid. Not only is this what occurred in Europe, the same thing is now happening in Japan.

Here’s some of what the Wall Street Journal has to say about “reforms” to the value-added tax in the land of the rising sun.

Japan on Tuesday increased its consumption tax to 8% from 5%. An increase to 10% is written into the law for next year, and don’t imagine for a minute that this will be the last. Welcome to the value-added-tax ratchet, which only goes in one direction—up. Tokyo first imposed a 3% consumption tax in 1989, after politicians had tried for a decade to enact one. …The new tax was billed as part of a tax reform, but the reform never materialized.

And as I warned in a prior column, the VAT has become a recipe for bigger government in Japan.

The new tax didn’t solve Japan’s deficit woes, as the debt to GDP ratio climbed to 50%, so in 1997 politicians increased the rate to 5%. Again politicians promised the increase would be offset by income-tax reforms. Again the reform proved illusory. …The additional revenue still didn’t satisfy Tokyo’s spending ambitions, and debt has since climbed well above 200% of GDP despite the VAT increase. …So now the rate is going up again in the name of, you guessed it, shoring up government finances as the population ages.

The OECD likes this development, which is hardly a surprise, but it’s bad news for those of us who favor growth and opportunity.

Japan’s experience points up the broader political problem with a value-added tax wherever it has been imposed. Economists tout the VAT for generating revenue without creating disincentives to work and invest. But in practice the consumption levy merely becomes one more tax in addition to current taxes and thus one more claim by the political class on the private economy. …The lesson for tax reformers elsewhere, not least in America, is to beware the VAT because once it is imposed it is only going up.

And it’s worth noting that the Europeans also have been increasing the VAT in recent years.

Simply stated, this is a levy to finance bigger government.

I elaborate in my video on the VAT.

P.S. You can see some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.

P.P.S. I also very much recommend what George Will wrote about the value-added tax.

P.P.P.S. I’m also quite amused that the IMF accidentally provided key evidence against the VAT.

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It’s no secret that I dislike the value-added tax.

But this isn’t because of its design. The VAT, after all, would be (presumably) a single-rate, consumption-based system, just like the flat tax and national sales tax. And that’s a much less destructive way of raising revenue compared to America’s corrupt and punitive internal revenue code.

But not all roads lead to Rome. Proponents of the flat tax and sales tax want to replace the income tax. That would be a very positive step.

Advocates of the VAT, by contrast, want to keep the income tax and give politicians another big source of revenue. That’s a catastrophically bad idea.

To understand what I mean, let’s look at a Bloomberg column by Al Hunt. He starts with a look at the political appetite for reform.

There is broad consensus that the U.S. tax system is inefficient, inequitable and hopelessly complex. …a 1986-style tax reform — broadening the base and lowering the rates — isn’t politically achievable today. …the conservative dream of starving government by slashing taxes and the liberal idea of paying for new initiatives by closing loopholes for the rich are nonstarters.

I agree with everything in those excerpts.

So does this mean Al Hunt and I are on the same wavelength?

Not exactly. I think we have to wait until 2017 to have any hope of tax reform (even then, only if we’re very lucky), whereas Hunt thinks the current logjam can be broken by adopting a VAT and modifying the income tax. More specifically, he’s talking about a proposal from a Columbia University Law Professor that would impose a 12.9 percent VAT while simultaneously creating a much bigger family allowance (sometimes referred to as the zero-bracket amount) so that millions of additional Americans no longer have to pay income tax.

Hunt likes this idea.

The Graetz initiative offers something for both sides. It starts, he suggests, with countering the observation once offered by former Treasury Secretary Larry Summers that liberals fear a value-added tax because it’s regressive and conservatives fear it because it’s a money machine. Graetz’s measure overcomes both objections.

Regarding the final sentence of that excerpt, he’s half right. Folks on the left will be happy to know that there will be a lot more redistribution through the tax code.

Graetz addresses the regressivity of most sales taxes, not by exempting food, drugs and other necessities as most of the older European systems do, but with a system of credits and offsets… He provides a payroll tax cut and expanded child-care credits focused on low- and moderate-income workers.

But what do advocates of small government get out of the deal?

Well, they do get something in the short run. Graetz wants to use the VAT money to reduce the burden of the income tax. Rates for households are lowered, with the top rate falling to 31 percent. And the best part of the plan may be that it reduces America’s uncompetitive corporate tax rate to 15 percent.

But I’m more worried about the long run, particularly after looking at evidence from Europe and Japan.

What’s in the plan, for instance, that would prevent the VAT from becoming a “money machine”? Or what guarantees would be put in place to prevent politicians from re-expanding the income tax?

Unfortunately, there don’t appear to be any safeguards. Professor Graetz has expressed some support for supermajority rules to protect against tax hikes, but he’s quoted in the article explicitly stating that a VAT could be used to generate more money to prop up the welfare state.

The Tax Policy Center found that his proposal succeeds in raising the same amount of revenue as current law. If revenue is to be part of any longer-term deficit reduction, Graetz observes, the value-added tax or the income taxes could be tweaked. “Actually, this would put us in a better situation to address the fiscal crunch down the road,” he says.

That statement scares the heck out of me. We desperately need the right kind of entitlement reform to save America from becoming another doomed welfare state. But what are the odds of getting good changes if politicians think they can continuously kick the can down the road by raising the VAT every couple of years.

Before you know it, we’re Greece!

If you don’t believe me about the VAT being a money machine, perhaps you’ll be more trusting of analysis from the International Monetary Fund. That bureaucracy actually supports the VAT, but the IMF inadvertently revealed in some research last year that the VAT is far more effective at generating new revenue than the income tax.

And that’s true for poor nations and rich nations.

This video from the Center for Freedom and Prosperity, narrated by yours truly, explains why the VAT would finance the road to serfdom.

Last but not least, it’s worth pointing out that Professor Graetz’s proposal has become more punitive over time. Check out this portion of a Tax Policy Center study showing that the VAT rate has been increased and that a new class-warfare tax rate has been added to the proposal.

VAT Graetz

So if the proposal has become more onerous on paper, imagine how much worse it will get once politicians get their hands on it.

P.S. If you want short explanations of the flat tax, sales tax, VAT, and current system, check out these Heartland Institute videos.

P.P.S. To be fair, there’s very little indication that Prof. Graetz wants bigger and more expensive government. He’s proposing a VAT for the same reason Cong. Paul Ryan has proposed a VAT. They think the revenue can be used to reduce the burden of the income tax. They’re not wrong in theory. They just don’t appreciate the danger of giving politicians a new source of revenue.

P.P.P.S. George Will correctly warns that the VAT should be off the table until and unless the 16th Amendment is repealed. And Robert Samuelson gives several reasons why this levy should be rejected.

P.P.P.P.S. Some advocates say the VAT is needed to forestall higher income tax rates, but that certainly hasn’t been the case in Europe.

P.P.P.P.P.S. You can enjoy some amusing VAT cartoons by clicking herehere, and here.

P.P.P.P.P.P.S. Al Hunt has always been a nice guy on the few occasions I’ve interacted with him, but it didn’t help my reputation when he wrote in the Wall Street Journal back in 1994 that I was a “responsible economic expert on the right.” That sounds like praise, but folks on the left generally only say nice things about their opponents when they’re being incompetent or selling out.

P.P.P.P.P.P.P.S. I’ll close with some good news. The U.S. Senate overwhelming rejected the concept of a VAT back in 2010, though I think the 85-13 vote overstates the level of opposition. Many left-wing Senators only voted no because it was a non-binding measure. But we don’t get many victories in Washington, so I’ll take it.

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I’ve always had a soft spot in my heart for Bill Clinton. In part, that’s because economic freedom increased and the burden of government spending was reduced during his time in office.

Partisans can argue whether Clinton actually deserves the credit for these good results, but I’m just happy we got better policy. Heck, Clinton was a lot more akin to Reagan that Obama, as this Michael Ramirez cartoon suggests.

Moreover, Clinton also has been the source of some very good political humor, some of which you can enjoy here, here, here, here, and here.

Most recently, he even made some constructive comments about corporate taxation and fiscal sovereignty.

Here are the relevant excerpts from a report in the Irish Examiner.

It is up to the US government to reform the country’s corporate tax system because the international trend is moving to the Irish model of low corporate rate with the burden on consumption taxes, said the former US president Bill Clinton. Moreover, …he said. “Ireland has the right to set whatever taxes you want.” …The international average is now 23% but the US tax rate has not changed. “…We need to reform our corporate tax rate, not to the same level as Ireland but it needs to come down.”

Kudos to Clinton for saying America’s corporate tax rate “needs to come down,” though you could say that’s the understatement of the year. The United States has the highest corporate tax rate among the 30-plus nations in the industrialized world. And we rank even worse – 94th out of 100 countries according to a couple of German economists – when you look at details of how corporate income is calculated.

And I applaud anyone who supports the right of low-tax nations to have competitive tax policy. This is a real issue in Europe. I noted back in 2010 that, “The European Commission originally wanted to require a minimum corporate tax rate of 45 percent. And as recently as 1992, there was an effort to require a minimum corporate tax rate of 30 percent.” And the pressure remains today, with Germany wanting to coerce Ireland into hiking its corporate rate and the OECD pushing to undermine Ireland’s corporate tax system.

All that being said – and before anyone accuses me of having a man-crush on Bill and/or of being delusional – let me now issue some very important caveats.

When Clinton says we should increase “the burden on consumption taxes,” that almost surely means he would like to see a value-added tax.

This would be a terrible idea, even if at first the revenue was used to finance a lower corporate tax rate. Simply stated, it would just be a matter of time before the politicians figured out how to use the VAT as a money machine to finance bigger government.

Indeed, it’s no coincidence that the welfare state in Europe exploded in the late 1960s/early 1970s, which was also the time when the VAT was being implemented. And it’s also worth noting that VAT rates in recent years have jumped significantly in both Europe and Japan.

Moreover, Clinton’s position on fiscal sovereignty has been very weak in the past. It was during his tenure, after all, that the OECD – with active support from the Clinton Treasury Department – launched its “harmful tax competition” attack against so-called tax havens.

In other words, he still has a long way to go if he wants to become an Adjunct Fellow at the Cato Institute.

P.S. Just in case anyone want to claim that the 1993 Clinton tax hike deserves credit for any of the good things that happened in the 1990s, look at this evidence before embarrassing yourself.

P.P.S. There’s very little reason to think that Hillary Clinton would be another Bill Clinton.

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If you have any long-term Japanese investments, sell them soon.

How do you say “Barack” in Japanese?

In part, that’s because the Japanese Prime Minister announced another Keynesian spending binge earlier this year – even though several so-called stimulus plans in Japan have flopped over the past two decades (Keynesian economics doesn’t work anywhere, but that’s a topic for another day).

Adding to the burden of government spending is not exactly prudent behavior for a nation that already has the highest level of debt among all industrialized countries.

But the main reason I’m so pessimistic about Japan is that the government has decided to deal with the problem of runaway government spending by imposing  permanently higher taxes on the private sector.

I’m not kidding. Let’s look at parts of a recent Reuters report.

Japan’s Prime Minister Shinzo Abe will…raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows.

Cartoon Fiscal Cliff 3

Japan’s government isn’t even pretending to restrain spending!

And to make a bad situation even worse, some of the money will be used for yet another faux stimulus package.

Abe ordered his government to compile the stimulus package to be announced on Tuesday. It features public-works spending for the 2020 Tokyo Olympics.

The main problem, though, is that Japan’s real fiscal problem is an ever-increasing burden of government spending. The tax increase won’t solve that problem. Indeed, it will give politicians an excuse to postpone much-need reforms.

Surprisingly, the Reuters report acknowledges these problems.

The government has done little to rein in spending…, so some critics doubt Tuesday’s move will be enough to get Japan on track to achieve its goal of halving the budget deficit – excluding debt service and income from debt sales – by the fiscal year to March 2016 and balance it five years later. …any improvement in government revenue from the tax increase is likely to be quickly overwhelmed by expenditures in a country where a rapidly ageing society and generous public services are blowing an ever-bigger hole in the budget.

Time to “decisively” raise taxes!

So why is the Prime Minister doing something that won’t work? Apparently this shows he is decisive. This is not a joke.

…pressing ahead with the tax hike bolsters the image Abe has sought to foster of a decisive leader, withstanding opposition from his advisers and some of his own party.

Gee, isn’t it wonderful that Japan’s Prime Minister decisively wants to do the wrong thing and decisively put his nation deeper in a ditch.

While rational people are puzzled by the Japanese government’s self-defeating decision to raise taxes, there is one group that is cheering. Here are some excerpts from Tax-News.com about the head bureaucrat from the OECD applauding the greed of Japan’s political class.

The Secretary General of the Organization for Economic Cooperation and Development Angel Gurria has warmly welcomed the announcement from Japanese Prime Minister Shinzo Abe that the nation will raise its consumption tax from its current five percent levy to eight percent from April 2014. …”As Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10 percent in 2015.”

So the OECD wants a hike in the VAT now…and another one in just two years. I’m sure Japanese taxpayers are overjoyed to be subsidizing a bunch of bureaucrats in Paris (who get tax-free salaries!) who urge more taxes on other people.

But, to be fair, the OECD wants higher taxes for everybody – including more Obama-style class-warfare taxes in America. The bureaucrats even argue that VATs are good for growth and job creation!

My view, for what it’s worth, is that this is another piece of evidence showing that the VAT is a money machine for big government. Not just in Japan, but also in Europe.

And the same would be true in America. This video explains further.

P.S. Here are some examples of how the Japanese government wastes money, though regulation of coffee enemas is my favorite example of government stupidity from Japan.

P.P.S. Click here, here, and here to enjoy some very good cartoons on the VAT.

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The most important, powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal restraint.

The most important, powerful, and relevant argument against the value-added tax in the long run is that more than 100 percent of America’s long-term fiscal problem is too much spending.

So why even consider giving politicians a new source of revenue such as the VAT, particularly since this hidden form of national sales tax helped cause the European fiscal crisis by facilitating a bigger welfare state?*

And now Europeans are doubling down on that failed approach, thus confirming that politicians will rarely make necessary spending reforms if they think more revenue can be squeezed from taxpayers.

Here’s a chart taken from the recent European Commission report on taxation trends in the EU. As you can see, the average VAT rate in Europe has jumped by nearly 2 percentage points in just five years.

VAT EU Increase

As I explained last week, European politicians also have been increasing income tax rates, so taxpayers are getting punished when they earn their income and they’re getting punished when they spend their income.

Which helps to explain why much of Europe is suffering from economic stagnation. Given the perverse incentives created by redistributionist fiscal policy, it makes more sense to climb in the wagon of government dependency.

For more information, here’s my video that describes the VAT and explains why it’s a bad idea.

*The same thing is now happening in Japan.

P.S. I don’t know if you’ll want to laugh or cry, but the tax-free bureaucrats at the Organization for Economic Cooperation and Development actually argue that the VAT is good for jobs and growth.

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The value-added tax is a pernicious levy.

It’s basically a hidden form of national sales tax, imposed every time a transaction occurs at any stage of the production process.

But what irks me about the VAT is not its design (indeed, it shares some key characteristics with the flat tax). What gets me agitated about the VAT is the fact that politicians always seem to treat the tax as a way of financing a larger burden of government spending.

That’s certainly what we’ve seen in Europe, both when the VAT was first implemented beginning about 45 years ago and more recently when many nations increased the rate to finance bailouts and faux Keynesian stimulus.

With this background, you’ll understand why I get excited whenever I see signs of anti-VAT fervor. Even in tiny and largely unknown British colonies such as the Turks and Caicos Islands.

Here are some excerpts from Tax-News.com.

On February 1, 2013, at a lengthy House of Assembly session, the newly elected Government backed a bill proposed by the opposition to block the introduction of the 11% VAT from April. TCI VAT Mutiny16 members backed the measure, with just 2 in favor of proceeding with the implementation of VAT. Since the announcement that VAT would be introduced, Turks and Caicos citizens and business groups have vehemently contended that VAT is inappropriate for the islands and is being “forced through” by the interim Government, at the behest of UK authorities.

Not surprisingly, given the pervasive statism in London (where the VAT rate was recently boosted to 20 percent), the U.K. government is on the wrong side of the issue, demanding that the VAT be imposed.

Last month, the UK’s Minister for the Overseas Territories, Mark Simmonds, rebuffed a request from the Turks and Caicos Islands’ new Premier, Rufus Ewing, that the implementation of the islands’ new value-added tax regime be deferred to allow time for the development of an alternative. He suggested that the islands review the regime in April 2014, a year after it is implemented.

The suggestion to “review” the VAT after one year is laughable. Sort of like asking someone to review their heroin usage after a year of addiction.

For those of us anchored in the real world, the only way to stop the VAT is to block it from ever being implemented. Because once politicians get hooked on a new source of revenue, there’s almost no hope of getting them to voluntarily relinquish those funds.

All that being said, I’m not a fan of the TCI government. Just like happened in the Cayman Islands (discussed in detail here), the government of the Turks and Caicos Islands spent too much money and put too many people on the payroll and paid them above-market wages (gee, sound familiar?).

They got in financial trouble, which led to intervention by the mother country.

But getting help from England on fiscal policy is like asking for dining advice from Hannibal Lecter.

The old TCI government was guilty of overspending, and now the U.K. thinks the answer is overtaxing.

I hope the new TCI government is able to somehow thwart the VAT. But if they’re serious about stopping that odious tax, then they better take some genuine steps to restrain government spending and prune bureaucratic expenses.

I’m not sure what lesson we have for the United States, other than the fact that we should fight to our last breaths before we let this awful tax get imposed in America. This video has more details.

P.S. Here are three very good cartoons on the VAT (here, here, and here).

P.P.S. Richard Teather of Bournemouth University in the United Kingdom has produced an independent report on whether a value-added tax is appropriate for TCK.

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