Say No To Romney’s Value Added Tax (VAT)

The main reason politicians are looking to a VAT is that it is easy to conceal. Like the State sales taxes, the Fair Tax shows up on each purchase made. If the rate goes up, you see it on the receipt. Not so the VAT. It’s not “now you see it”, it is “now you don’t”. Europe has the VAT and see where their economies are now.

Excerpt: In a recent interview on these pages (WSJ), presidential candidate Mitt Romney refused to rule out a value-added tax (VAT). He suggested that this hidden form of a national sales tax—which is embedded in the prices of goods and services during the production process—might be appropriate, particularly as a way of financing other tax cuts.

He’s not the only Republican to speak favorably of a VAT. Herman Cain’s 9-9-9 tax plan featured a flat tax and national sales tax. Very few people realized, however, that the final 9 was a VAT. And Rep. Paul Ryan, the chairman of the House Budget Committee and a favorite of the tea party thanks to his bold reforms to modernize Medicare and Medicaid, includes a VAT in his “Roadmap” plan, where it helps finance other reforms such as eliminating the corporate income tax.

What’s going on here?

Most Republican supporters are drawn to the VAT for relatively benign reasons. It is a single-rate system, like the flat tax, for raising revenue, so it does not raise the possibility of class-warfare demagoguery. The VAT also doesn’t hit savings and investment. And there are no distorting and corrupt loopholes. So there’s a lot to like about the levy—or would be, if there were some practicable way of substituting a VAT for taxes on income.

The most important thing to realize is that many people in Washington want bigger government, and a VAT is a necessary condition for that to happen. Simply stated, there is no way to turn America into a European-style welfare state without this new source of revenue.

Unsurprisingly, President Obama is favorably inclined toward a VAT, having recently claimed that it is “something that has worked for other countries.” And yet it’s unlikely that the president would propose a VAT, in large part because he is fixated on class-warfare tax hikes. If he did, almost every Republican in Congress would be opposed, even if only for partisan reasons.

But what if a VAT sympathizer like Mr. Romney wins next November and decides that his plan for a lower corporate tax rate is only possible if accompanied by a VAT? There will be quite a few Republicans who like that idea because they want to do something nice for their lobbyist friends in the business community. And there will be many Democrats drawn to the plan because they realize that they need this new source of revenue to enable bigger government.

That’s a win-win deal for politicians and a terrible deal for taxpayers.

Read full WSJ article here.

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4 thoughts on “Say No To Romney’s Value Added Tax (VAT)

  1. Main Street,

    You still don’t seem to get it. Why is a 10% VAT any more obscure than a 10% sales tax as long as both are listed on the retail sales receipt? They are identical.
    And, a sales tax has no less power to pick winners and losers than a VAT. Both depend on selecting just what is to be taxed.
    I haven’t seen any cost data that shows that a VAT is more expensive to maintain, but I can guarantee that the VAT has far less evasion than a sales tax. Check it out.

    • Just going by the Fair Tax website and other things I have read. The Fair Tax is based on the elimination of the Income Tax, the VAT is not. Because the VAT is paid at multiple stages of the production cycle, it does not show on the sales receipt of the ultimate consumer. The Fair Tax does.

      This is what the Fair Tax site says:

      What about value-added taxes (VATs), like they have in Europe and Canada? Are they not consumption taxes?

      While VATs are also consumption taxes, and better than income taxes, the FairTax is not a VAT. A VAT works very differently. It taxes every stage of production. It is much more complex and is typically hidden from the retail consumer. Second, in industrialized countries that have a VAT, it coexists with high-rate income tax, payroll, and many other taxes that, in some instances, have led to marginal tax rates as high as 70 percent. Third, all other industrialized countries, except Australia and Japan, have a much larger tax burden than the U.S., which requires higher rates and makes tax administration much more difficult. Lastly, a VAT is a lobbyist’s dream, allowing them to install their loopholes unbeknownst to the purchaser. A retail sales tax, in contrast, is a lobbyist’s nightmare, applied as it is under the bright lights of the retail counter.

      This from Weakonomics site:

      In most countries the VAT has produced less revenue than expected. This is because of the hefty costs to the government required to make sure everyone is paying. At some point it costs the government more to chase after the evaders than the expected revenue from catching them. The end result is those that do pay, end up having to pay more for compensating the cheaters. A system that punishes those following the rules can result in bad public opinion.

      Because the value added tax and fair tax are so related, their problems are similar. However the VAT is a more complicated system than the fair tax, making fraud much easier. A move from the current tax system to the VAT would take a very long time. Because the government prefers to use tax law as an economic stimulus, it is likely the tax code would end up being just as bloated as it is today. The auditing industry would surely survive, but only after a long and painful transition. Because Americans don’t like change, it’s difficult to conceive we would ever make the move to another complicated taxing system.

  2. A Vat and a National sales tax raise exactly the same amount of revenue at the same rate. The only difference is that the VAT revenue is collected in small chunks at each stage of production, while the sales tax is collected all at once at the retail cash register. And, there is nothing hidden about a VAT. The tax rate can be printed on the retail sales receipt in exactly the same way as a sales tax. It is also interesting to note that a VAT can actually raise more revenue due to the self policing nature of the collection process. Over 130 nations worldwide use a Vat; not one nation uses a national sales tax. Don’t you wonder why?

    • I don’t wonder why. Politicians want to obscure what they are doing to the taxpayer. That is the reason for the VAT. In addition, they can pick and chose where to add the tax and not, so that they still have the power to pick winners and losers. In addition, the cost of maintaining the VAT is much more than that of the Fair Tax. Why do states use the sales tax? Because it is easy to administer.

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