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Apr. 6 2010 - 1:31 pm | 709 views | 0 recommendations | 7 comments

VAT Chance: The National Sales Tax Must Be Stopped

Spread that love Daddy Warbucks

A tax structure that only Daddy Warbucks could love.

Washington elites are increasingly ‘consumed’ with the idea of levying a consumption tax – that is, a national sales tax. (Though they almost all use the obfuscatory term “value added tax,” or even more dishonestly, “VAT.”) The New York Times columnist David Brooks, that epitome of moderate and considered opinion, has floated the idea, as has fiscal discipline maven Bruce Barlett. This weekend, Washington Post columnist David Ignatuius, another “moderate” he, used an appearance on the Chris Matthews Show to claim that America needs a national sales tax to “get us out of the mess.” True/Slant’s own “American Tory” ED Kain is also a fan.

Alas, the imposition of a national sales tax is a nasty, noxious proposal.

The national sales tax should be resisted for a number of reasons. First and foremost, a national sales tax will do great harm to our economy. (Goodbye, green chutes!) Yet more distressingly, the national sales tax represents an attempt to balance the federal budget on the backs of the poor. And, perhaps most disturbingly, the current sales tax bubble is emblematic of the anti-consumption, austerity-crazed mindset which is currently all the rage among the elites.

Over 70% of the American economy is based on domestic consumer spending. Unlike other rich countries such as Japan and Germany – countries that rely on exports to thrive – America’s job and production machine is dependent on the consumer’s willingness to spend. That is to say, somewhat paradoxically, spending money actually generates wealth in America. The jobs, earnings, and production that consumer spending results in is the engine that powers our economy – and the engine that will get us out of this nasty recession. Why, in this climate, should the government punish consumers with a punitive national sales tax? Why attempt to discourage spending, when spending is what will save us?

But let’s leave the quotidian economic effects of the VAT aside for a moment, and consider the ideological implications of the proposal. There can be little doubt that the United States is in some degree of fiscal peril, and that some steps to raise revenue need to be undertaken. A raise in income tax rates, for example, would seem a prudent move. Income, in itself, generates no wealth and accomplishes nothing. What’s more, those with the highest income are those, inherently, with the most ability to pay a greater degree of taxes. A progressive tax system would be one in which those with the highest income bore the highest degree of the tax burden.

Sales taxes, on the other hand, are inherently regressive – the poor and middle classes feel a disproportionate amount of economic pain when subjected to them. It’s little wonder that ultra-conservative Alabama has the nation’s most regressive tax system – that is, the state has low income and property tax rates, and punishingly high sales taxes. This frankly immoral structure means that poor Alabamians pay a woefully disproportionate amount of their money to the government, while the rich get off unmolested. In sum, then, proponents of the national sales tax want to solve the government’s budgetary problems by sticking it to the poor. They want consumption to be taxed, not income. They want the federal tax structure to resemble Alabama’s.

Broadly, the proposal to levy a national sales tax represents another jeremiad in the political elite’s war on consumption. The distrust of consumption used to primarily be the province of the anti-materialist left – those who trumpeted “buy nothing day,” and the “DIY” ethos. These days, it’s firmly in the mainstream. David Brooks pens homilies to austerity, Michelle Obama lectures sternly on not letting the kids eat too much tasty grub, and scribes at Slate magazine hector us about cutting energy usage. Levying a sales tax is just another attempt to coerce Americans into “consuming” less.

The national sales tax – or sorry, the “value added tax” – is a bad idea indeed. The “values” it embodies are truly reprehensible.


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  1. collapse expand

    Why should rich people be taxed more just because they have figured out a way to earn it? Don’t get me wrong. I like the idea! I just cannot morally justify it without a de facto acceptance of the notion that they earned their income in some untoward manner. Some of those rich people worked their asses off, created jobs, and help build the complex structure that is critical to our economic success. Some (not all) live modestly beneath their means. If you want to moralize soaking the rich, go after the things they love that are injurious to our long term economic well being, like 8-cylinder vehicles, and heating palatial living spaces. If somebody can figure out how to soak Al Gore for cruising around in a 435 HP Maserati and living in a Giant Mansion with elitist absolution on account of a clever gimmick called “carbon credits”, we’re onto something.

  2. collapse expand

    A Value-Added Tax is not a mere sales tax. It’s completely disingenuous to call a simple sales tax at one end of the good’s life cycle at all similar to a true VAT.

    As a matter of fact, the VAT was invented so that sales taxes could be avoided, or at least kept low enough to prevent black markets from developing.

    My guess is that Republicans would have zero interest in an actual VAT tax, as the tax applies to businesses as they obtain goods for the manufacture of other goods (hence the name “value added”). It would seem that Republicans are only interested in the consumer-facing aspect of a such a tax, and not in the intermediate business-to-business aspects of it.

  3. collapse expand

    I disagree with your characterization of Alabama. While it is true that it is the most regressive tax code in the country, it is not because of “low income and property tax rates, and punishingly high sales taxes.”

    Alabama has low property tax rates. This is because of a general desire for regressive tax schemes in part, but it is also due to the fact that that money can be redistributed. So, for example, if a municipality raises property taxes to bring in more money for schools, once they cross a certain threshold, the state will come in and take some of that money and send it to poorer areas of the state that have not raised their property taxes. This leaves municipalities with a disincentive to raise property taxes- a disincentive that is not present in other places.

    As for your assertion that Alabama has punishingly high sales taxes, that is just plain false. The state sales tax is 4%. Depending an municipalities, it can go to 7 or 8%. There is a municipality that charges 12% including the states 4% that gets a lot of press, but in reality, it is only a few square blocks in that city, and the only place in the state like that. Whether factoring in Municipal taxes or just looking at the state sales tax, Alabama is not at the top. Bastions of conservatism such as Chicago and California are.

    Now what Alabama does have, is remarkeably high sin taxes.

    But the real reason that Alabama is the most regressive tax code in the country is because they start collecting income tax at somewhere between 4-5k. (i forget exactly) The last time I looked, the next lowest state, Mississippi did not start collecting income tax until $17,500.

    So yes, Alabama is regressive. But it is not because of sales tax. It is primarily because of income tax, but also a little because of property tax.

  4. collapse expand

    You can read everything you need to about VAT and National Sales (Fair) Tax here, in Chapters 8 and 9 from the President’s [Bush, NOT Obama] Advisory Panel on Tax Reform.
    http://govinfo.library.unt.edu/taxreformpanel/final-report/index.html

    These ideas were deemed too draconian even for the BUSH administration! Think about that for a minute. These are not the findings of evil progressives.

    For anyone who doesn’t feel like reading it, just skim through to the color graphics, index your annual income, and see how your tax burden would rise unless you are one of the American households which earns $200,000+ per year. [Figures 8.2, 8.4, 9.1., 9.2]
    Note: This is only your federal tax burden, not state (see below)

    ATTENTION “REAGAN” CONSERVATIVES (assuming that you don’t care about the little guy’s income tax rates), check out highlights such as:
    –Bad for small business (p. 205)
    –Tax evasion will be worse under VAT than income tax (215)
    Once the federal gov’t institutes a sales tax, states will be forced to INCREASE income tax; even places like TX, FL, WA won’t be safe (220)
    Could create America’s largest entitlement program (222)

    Although I know it’s confusing, be warned when you hear Fair Tax proponents that they will purposefully mislead by replacing tax-inclusive rates with tax-exclusive rates. [Box 9.1, p. 208]

    This is the most common misrepresentation advanced by their side, but there are others documented here, such as fudging tax evasion estimates. They assume that since there isn’t much tax evasion on retail-only transactions of 5-10%, there won’t be any even when they raise the sales tax rate to 25% (or as much as 59%! – Table 9.1) on ALL transactions.

  5. collapse expand

    We have 5 million public employees across the usa who are exempt from social security taxes….why not start making these people pay their fair share….and it all goes into the general fund

  6. collapse expand

    You can find fault with any tax system but it is clear we need something different. A National sales tax could be tailored to protect low income people. Plus, as much as it is easy to go after rich people and corporations for not paying their share, there are countless numbers of people who run cash businesses, two book operations, that avoid paying tax. The truth is that ALL of us would have to pay more in taxes if we are to avoid financial collapse in this country.

  7. collapse expand

    ^green chutes^green shoots

    Unless you’re trying to make a parachute joke that I missed.

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    About Me

    I'm a writer based in Portland, Oregon. My work has appeared in the Weekly Standard, the American Spectator, the New York Press, The Big Money, sp!Ked online, the Epoch Times, the Daily NK, and others. From 2005 to 2007, I wrote a column on culture and politics for the (alas, now defunct) Seattle-based Internationalist Magazine. In so doing, I filed dispatches from Berlin, Seoul, Paris, New York, and, yes, Reno - among other places. In 2009, I reported on business from Shanghai. I attended Reed College, in Portland, Oregon.

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