On value added taxes and the European-style government

HUNTSVILLE, 28 May 2010 By Lester H. Beaird — All of us have heard something of VAT (Value added tax). It is my fear that some of the characteristics and results of such tax are not being thoroughly explored, much less explained, in the media. The following will be my take on where we are heading, if such a tax is passed in this country.

Value Added Tax is not new. The first proposal for such a tax came almost a hundred years ago. The first one implemented was in the 1950s. Many others have followed through the years, and now our country is being targeted by the progressive-socialist leadership in the country. It is easy to understand why. This kind of tax dramatically increases the amount of tax revenue collected by the federal government. This will be touted as necessary to reduce our national debt. In reality, it will be about the continuation of escalating spending and government growth, including the further drastic intrusion of government in the provision of health care.

Charles Krauthammer, in a recent Washington Post article said "As a substitute for the income tax, the Value Added Tax would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democrat project, the Value Added Tax must be added on top of the income tax." 

There is no doubt in my mind that will be attempted. In addition to being on top of our current income tax, it will be on top of the expiring tax cuts that will not be renewed, and on top of all the new taxes (by whatever  name the administration calls them) that are built into the health care bill.

There are those proponents of Value Added Tax that would try to lead one to believe that it is just a national "sales tax", which would probably be suggested at a rate lower that the current minimum of 15 percent for the European Union. We need to explore how a Value Added Tax works in reality. It is not just a simple sales tax – it is much more.

Suppose you, as a patriotic American, need a new piece of furniture, and you want it made of real wood, built in America. With VAT, here's a simple analogy of how that would happen. To get the wood, a logger has to cut a tree. If he doesn't already own the tree, he has to buy it, paying a tax on that transaction. Then, on any tools, equipment, supplies and vehicles he has to add after a VAT goes into effect, he will have to pay tax on each of those transactions.

Now he has cut the tree, and loaded it on his truck. He goes to the sawmill, where he sells the logs to the miller. The miller must pay tax on that transaction. The miller also has to pay tax on his supplies, equipment, fuel, etc. to cut the logs up into lumber. Let's say he has the equipment to kiln-dry and finish the lumber. He has to pay VAT taxes on all of the equipment, supplies, and fuel to accomplish that.

Now, the finished lumber is ready to go the furniture maker. Either by the miller's trucks, or private hire, the lumber is taken to the plant where your chest is to be made. Value Added Tax is paid on the shipping, and on the purchase of the lumber. The furniture maker, using equipment, supplies, and energy that he pays tax on, builds you that chest just like you want. After construction and finishing, he is now ready to ship the finished chest to the retail store in your town.

The retailer, who has to pay tax on the chest, when he purchases it from the furniture maker, is then ready to sell the chest to you. You have tax to pay, in addition to the purchase price and the State sales tax. How much??  All of it!!! As the retail purchaser, you will pay the entire tax bill.  You will be paying tax on the tree, saws, files, loader, truck, fuel, logs, dry-kiln, lumber, trucking, sanders, sandpaper, finishing, packaging, etc, and the finished product. All of the other previous payers, as businesses, pass on tax costs as a part of their business expense.

One would think that a tax of this sort would produce a tremendous amount of tax revenue for the government, and, in fact, it does. However, it produces some other effects, as well. It has been proven, over and over again, that Value Added Tax will drive down consumption, for the simple fact that prices of all products will skyrocket, and with higher prices, people buy less. Typical governmental response in other parts of the world, when this occurs, is to raise the Value Added Tax rate.  Several of the Scandinavian countries are now at the 25 percent rate, and still going broke.

Another effect of Value Added Tax comes due to its regressive nature. A larger portion of poor wage earner's income goes to these taxes, so Value Added Tax creates a hardship for them. The typical big government response is to provide a method for tax rebates for that group.  This again causes a drop of tax revenue, and the usual cry for an increase in the tax rate. I suspect our current liberal administration and congress would want to opt for a higher Value Added Tax and an increase in the top income tax brackets.

There has been an alleged  "bi-partisan" committee appointed to study our debt and make recommendations to the Administration. This is, quite conveniently, scheduled to be reported after the election in November.  What will they recommend?  Whatever it is, it won't be good.  There is another way to work on our National debt – cut spending. We must stop the rampant growth of federal bureaucracy and entitlements, or we will spend this great country into failure.

If this sounds scary to you – you are not alone. There are millions of us who fear the idea of value added tax. If it is also coupled with the thinly disguised criminal enterprise being put together to buy and sell "carbon credits" through the Chicago Carbon Exchange, we can anticipate that the price all of the goods and services we purchase will, as our President said, "necessarily skyrocket". There will be more to come in the near future on the "Cap and Tax" scam that is planned.

Concerned citizens must stay energized and in opposition to those who would do this to America. We must vote for those candidates who may bring some practical sensibility to Washington, D.C. We must keep getting the message to those in office that we love our country, and we want the spending decreased. We want our representatives to do the right thing. At some point, and hopefully it will be this year, we must make politicians aware of the power of our votes. At that point, maybe we can have the kind of representative government addressed by the Constitution. 

One good idea has just surfaced providing a vehicle to voice our views on programs that we should not continue to fund. It is called "You Cut," and is managed by Eric Cantor, the congressional minority whip. On his Web site, he has posted data regarding several costly federal programs, and asks us which we would cut, if we had the power. This may be seen at http//republicanwhip.house.gov. Check it out, and express your opinion.