Sooner or later, there will be a giant battle in Washington over the value-added tax. The people who want bigger government (and the people who are willing to surrender to big government) understand that a new source of tax revenue is needed to turn the United States into a European-style social welfare state. But that’s exactly why the VAT is a terrible idea.
I explain why in a column for Reuters. The entire thing is worth reading, but here’s an excerpt of some key points.
Many Washington insiders are claiming that America needs a value-added tax (VAT) to get rid of red ink. …And President Obama says that a VAT is “something that has worked for other countries.” Every single one of these assertions is demonstrably false. …One of the many problems with a VAT is that it is a hidden levy. …VATs are imposed at each stage of the production process and thus get embedded in the price of goods. And because the VAT is hidden from consumers, politicians find they are an easy source of new revenue – which is one reason why the average VAT rate in Europe is now more than 20 percent! …Western European nations first began imposing VATs about 40 years ago, and the result has been bigger government, permanent deficits and more debt. According to the Economist Intelligence Unit, public debt is equal to 74 percent of GDP in Western Europe, compared to 64 percent of GDP in the United States (and the gap was much bigger before the Bush-Obama spending spree doubled America’s debt burden). The most important comparison is not debt, but rather the burden of government spending. …you don’t cure an alcoholic by giving him keys to a liquor store, you don’t promote fiscal responsibility by giving government a new source of revenue. …To be sure, we would have a better tax system if proponents got rid of the income tax and replaced it with a VAT. But that’s not what’s being discussed. At best, some proponents claim we could reduce other taxes in exchange for a VAT. Once again, though, the evidence from Europe shows this is a naive hope. The tax burden on personal and corporate income is much higher today than it was in the pre-VAT era. …When President Obama said the VAT is “something that has worked for other countries,” he should have specified that the tax is good for the politicians of those nations, but not for the people. The political elite got more money that they use to buy votes, and they got a new tax code, enabling them to auction off loopholes to special interest groups.
You can see some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.
For further information on why the VAT is a horrible proposal, including lots of specific numbers and comparisons between the United States and Western Europe, here’s a video from the Center for Freedom and Prosperity.
[…] Indeed, it’s worth noting that the reason that government is much bigger in Europe is not because they tax the rich more, but rather because they have higher burdens on low- and moderate-income taxpayers (largely because of the value-added tax). […]
[…] Indeed, it’s worth noting that the reason that government is much bigger in Europe is not because they tax the rich more, but rather because they have higher burdens on low- and moderate-income taxpayers (largely because of the value-added tax). […]
[…] Once you understand their motivations, it’s easy to understand why Washington insiders are so supportive of “bipartisan budget deals” and why they salivate so much for a value-added tax. […]
[…] 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 […]
[…] the value-added tax is one of my main priorities (and why advocates of small government should be worried not just about Obama winning re-election, but also worried about Romney […]
[…] is not a trivial threat. Obama, for instance, already has expressed support, saying that the VAT is “something that has worked for other countries.” Romney’s also […]
[…] is not a trivial threat. Obama, for instance, already has expressed support, saying that the VAT is “something that has worked for other countries.” Romney’s also […]
[…] for hurting the middle class is a value-added tax. Notwithstanding the fiscal crisis in Europe, he actually said the VAT is “something that has worked for other […]
[…] for hurting the middle class is a value-added tax. Notwithstanding the fiscal crisis in Europe, he actually said the VAT is “something that has worked for other […]
[…] the value-added tax is one of my main priorities (and why advocates of small government should be worried not just about Obama winning re-election, but also worried about Romney […]
[…] the consumer when they shop than they are currently collecting. Obama has also made comments about VAT tax as well “something that has worked for other countries.” The International Monetary Fund […]
[…] is not a trivial threat. Obama, for instance, already has expressed support, saying that the VAT is “something that has worked for other countries.” Romney’s […]
[…] People probably get tired of me warning against the value-added tax, but that’s going to the key fight at some point in the future. If the left (with the help of foolish Republicans) succeeds in imposing this hidden tax, I fear that the fight will be over and that America is doomed to become another Greece. […]
[…] Not surprisingly, he has been sympathetic, appointing VAT sympathizers to high office and remarking that a VAT is “something that has worked for other countries.” […]
[…] Not surprisingly, he has been sympathetic, appointing VAT sympathizers to high office and remarking that a VAT is “something that has worked for other countries.” […]
[…] Not surprisingly, he has been sympathetic, appointing VAT sympathizers to high office and remarking that a VAT is “something that has worked for other countries.” […]
[…] rather obvious that Krueger, like other leftists, wants this giant new source of revenue. Heck, President Obama also has semi-endorsed a VAT, saying it is “something that has worked for other […]
[…] rather obvious that Krueger, like other leftists, wants this giant new source of revenue. Heck, President Obama also has semi-endorsed a VAT, saying it is “something that has worked for other […]
[…] But that’s not going to happen, so my second point was to warn that the VAT would be a recipe for bigger government. And even though some of my fellow witnesses said the revenue could be used to reduce deficits, I pointed out that Europe adopted VATs beginning in the 1960s and that hasn’t stopped welfare states such as Greece and Portugal from spending themselves into a fisc…. […]
Hello,
A good piece. Speaking from Europe, VAT is a huge tax compliance headache which government has forced onto businesses – as non-paid tax collectors.
Plus there seems to be a new increase every week. Looking at the rates on this site http://www.tmf-vat.com/tmf-in-the-media/2011-european-vat-increases.html count 14 VAT rises in January 2011 alone. And there were more since.
In fact Iran, of all places, has just announced they will increase their VAT rate from 3% to 8% over the next few years.
That should make us all ponder!
Kind regards,
David