Value added tax bad idea

And to make matters worse, try finding this federal tax on a receipt

Where will they strike next?

Now that we've been flattened with the crushing weight of what Democrats imagine is health care reform, what additional burdens will follow? Some say it'll be "comprehensive" (there's that word again) immigration reform, providing a "path" for millions of expatriates here illegally to be rewarded with citizenship.

But you've got to be careful when trying to figure out the direction of the next Democratic blitz. The Democrats are likely to surprise you by suddenly veering off in a different direction, or sneaking in the unexpected. Like they did with the federal takeover of the student loan program while we were distracted by the sizzling health care debate. While similarly distracted, they also zapped us with another exorbitant "stimulus" package of "investments" in roads, bridges, "clean energy" and whatnot. What have I forgotten? Oh, yes, Race to the Top, another futile showering of public schools with billions in a continuing campaign to concentrate education powers in Washington.

It's as if liberals had been waiting for years for their chance to launch this frenzy, and now with a gigantic, satisfying belch, they have issued forth every invention, concoction or scheme they've been unable to launch since President Lyndon B. Johnson. I guess they figure this is their one chance in a generation of getting them all enacted, and in that, they'd be right.

So, as we rush to break up the commotion around the corner about, say, immigration reform, we end up discovering that it's only a feint. Because in the other direction, behind our backs, is approaching an even larger horror -- the value added tax.

Paul Volcker, chairman of President Barack Obama's Economic Recovery Advisory Board, dropped the bomb last week when he said a value added tax is "not a toxic idea." That was an odd way to describe what essentially would be a national sales tax designed to suck hundreds of billions of dollars out of the American economy.

That Democrats might embrace a VAT surprises me. Well, maybe I shouldn't be surprised, because the tax is widely levied in Europe, and we know how fond liberals are of all things European. Republicans have occasionally toyed with the VAT idea, but as a substitute for -- can I say it? -- "comprehensive" reform of the present jumbled tax system. Republicans weren't proposing that it be piled on top of existing taxes.

Of greater surprise and importance about Democratic interest in the VAT is its punitive effect on poor and middle-class Americans. Liberals -- at least old-school ones -- long opposed sales taxes because the poor and middle class pay a greater percentage of their income for it than the rich. To put it bluntly, the regressive VAT leaves the poor and middle class holding the bag.

Here's how: The tax is levied at each stage of production. A knitting mill, for example, pays a yarn-maker $1 for the yarn in each sweater. The mill then sells each sweater to Kmart for $3. The value added is $2 per sweater. If the VAT is 10 percent of the added value, the sweater-maker pays a 20-cent tax. Now comes the hitch: The sweater-maker may not have to pay the full 20 cents; when he pays his tax, he can deduct whatever everyone upstream in the supply chain, including the yarn-maker, paid in the VAT. For example, if the yarn-maker paid 10 cents for the value he added to the product, the mill can deduct that from the 20 cents he must pay.

Confusing, yes. But here's how to keep it simple: Guess who pays the full cost of the VAT? The "end user." That'd be you, the consumer. Unlike manufacturers, you can't deduct the VAT paid by previous producers in the supply chain. You pay it all, because it is built into the price you pay for your sweaters, cars, appliances, etc. The sneaky part is that, unlike state and local sales taxes, the national sales tax is not separately listed on your receipt. So, it feels like you're not paying the tax. From the viewpoint of the politicians, it's a perfect tax because it is invisible.

Perfect, that is, for Democrats to try to impose on an unwilling public during a lame duck session after the November election. It would be their final belch in this generation.

This column also appeared in the Chicago Tribune

Comments

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  • Here's another Euro tax the left just loves to copy. How well is that working out in europe???????

  • Look at what some of the more successful euro economies use,FLAT TAX. Even the russians have that.We won';t see that one here because it will actually make the deadbeat non payers pay something.

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