Monday, May 31, 2010

Do We Need a National Sales Tax?

This is how we get into trouble: Redesigning our taxes casually on a Sunday afternoon while reading the newspaper.

Yesterday's Parade magazine does the casual thing with the Value-Added Tax.

Alarmed by our country’s annual $1.4 trillion deficit, some economists have suggested that the U.S. adopt a national sales tax.

See the focus there? ...our country’s annual $1.4 trillion deficit... Economists who are alarmed by one particular part of the economic problem will be unable to see the whole problem, unable to see it clearly, and therefore unable to solve the problem.

Currently, about 150 countries have this type of value-added tax, or VAT: In Great Britain, it’s 17.5%; China, 17%; Mexico, 16%; Egypt, 10%; and Kazakhstan, 12%.


So, just because 150 countries copied each other and got the VAT, that makes it good?

Of the five countries listed by name, which one has a good economy? None. Not even China, at the moment. And before the financial crisis? only China, probably. And if China was doing well it wasn't because of the VAT. It was because China has a young and growing capitalism that is sucking the life out of ours.

Anyway, looking at the VAT as a solution is as myopic as focusing on the deficit when we need to understand the whole problem. And for the record, one does not solve economic problems by adopting casually-considered policies. One creates problems that way.

The tax typically applies to all purchases, as well as to services from haircuts to stock trades.

Oh, well there ya go. But I'm bettin' that's not true. The VAT doesn't apply to all purchases. It applies to all consumption only, and not to the "supply side." So it further enhances the imbalance between supply and demand.

And whose great idea is it anyway, to tax "value added"? Don't we want to add value? Don't we want to create value?? Don't we want to grow output???

Every tax is a dis-incentive. A tax on value-added discourages adding value. The VAT discourages the growth of output. It it has any positive effect at all, it is that by enhancing the imbalance between supply and demand it makes the supply side look a little better for a while. A few years down the road, we'll be looking for some other thing we can do to fix the economy again.

Just don't be casual about policy, that's all. Economic policy shapes the world.

VATs “often generate half of a country’s public revenues,” says Robert Goulder of Tax Analysts, a nonprofit publisher of tax-policy magazines. In France, for instance, the VAT accounts for 52% of the money the government collects. “Most of the 150 countries that have a VAT would be fiscally crippled without it,” Goulder says.

Geek. Most of the countries that don't have the VAT would be financially crippled if you removed their biggest source of revenue. This isn't logical argument. It's filler for the Sunday paper. Casual crap.

In the U.S., each 1% of VAT could raise $1 trillion over 10 years, according to the Congressional Budget Office. While some federal lawmakers are warming to the idea, others say such a tax disproportionately hurts the poor, who spend most of their income on necessities. Some countries counter that problem by using a dual-rate structure—lowering or eliminating the VAT on purchases like prescription medicines and groceries. However, some policy experts worry that a VAT could actually raise so much money—and so easily—that it would encourage Congressional waste. “A VAT would take the pressure off the government to rein in spending,” says Rudolph Penner, a fellow with the Urban Institute, a public-policy think tank. “And the more they spend, the more taxpayers have to shell out.”

— Drew Jubera

Blather. Shame on you, Drew Jubera. There's no such thing as a painless tax.

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