V.A.T. is B-A-D!

Good news: the “FairTax” crowd may get half of what they want. The bad news: it’s the wrong half.
Last week, the New York Post reported Paul Volcker former Federal Reserve Chairman (August 6, 1979 – August 11, 1987) and current White House Economic Advisor suggested imposing a “value added tax” (or VAT) similar to those charged in Europe to help get the deficit under control. Volcker told the global economic panel that a VAT is “not as toxic an idea as it has been in the past…. If, at the end of the day, we need to raise taxes, we should raise taxes.”

The National Taxpayers Union writes, “The fact of the matter is that VAT would be a huge mistake, resulting in even more jobs lost and slower economic growth in a time when we cannot afford either. For those of you unfamiliar with the concept, VAT is a type of national sales tax levied on the “value added” to goods and services as they pass through each stage of the production process. While the VAT is a fixed percent of the final price, just like a retail sales tax, it differs from the current system because the cost of the VAT to consumers would be hidden. That’s right. You, the buyer, would be unable to differentiate between the price of a good and the amount you are paying for its tax.”
Since the VAT is imposed at the wholesale level as well as the retail level, it becomes difficult to avoid the tax via buying over the Internet, opening a business, buying at wholesale, buying products through an employer etc.

The NTU continues, “Furthermore, the VAT would lead to even bigger government (if you can imagine), as we see in Europe, and increase potential for special exemptions and hidden tax breaks by well-connected industry lobbyists. Cato’s Dan Mitchell points out that the VAT is “linked with higher overall tax burdens and more government spending.” Europe’s income taxes are higher today than when VATs were implemented, and its collective tax burden has increased to 40%. Similarly, government spending in EU-15 nations hovers around 47% of GDP, compared to 30% in 1965.”

While not exactly the proposal of the FairTax crowd, it’s half of what they want. I’ve not heard the FairTaxers explain how shifting a tax burden from income to consumption would reduce spending, only that somehow it’s “easier” to repeal the 16th Amendement and abolish the IRS and pass the “FairTax” than it is to repeal the 16th, abolish the IRS & eliminate unconstitutional spending, which would create a balanced budget. It seems to me they don’t have a problem with the spending, just the form of taxation. The NTU adds, “…the FairTax would be a COMPLETE replacement of the current tax code. The VAT would be added on top of existing burdens! Taxpayers would undeniably suffer for the poor economic policy decisions of a desperate administration. It might be different if Congress repealed all income taxes and put a VAT in their place, but that is not realistic thinking, nor what Volcker was suggesting.”