VAT is coming

[Haggis@wk]

On Obama adviser Paul Volcker’s raising the possibility of a value-added tax (VAT), which Krauthammer predicted in his column two weeks ago:

It was obvious on the day that health-care was signed. We enacted the largest entitlement since the New Deal. We're now reaching levels of the European entitlement state and we are going to have to have European levels of taxation.
Now, how are you going to do it? The income tax is tapped out. As a result of Republican efforts, half of the American people pay zero income tax and you can only squeeze so much out of the other half. We're already going to be raising taxes when the Bush cuts expire.
All that is left is the VAT. That is what happens in Europe. And the reason it's attractive and it's so inevitable is because it creates a river of cash, where one percent is $100 billion a year of revenue. So a 10 percent [VAT] here would be $1 trillion a year.
The Europeans have it at levels of about 20 percent. It's addicting. If you raise it a half a percent or one [percent], you get a lot of money and nobody really notices. And the VAT is not quite a sales tax because a lot of it is hidden. . . .
That's why politicians love it — because a lot of it is hidden in the price of the item. Only a bit of is [visible] on the surface as a tax. So I think ultimately it will be enacted.
Obama as a candidate would never speak about it and the Democrats up until enactment of health care pretended no new taxes would be involved. It obviously is coming. . . .
[The Democrats] will deny it [contemplating a VAT] until elections in November. They'll say we're not considering it. What a crazy idea. Only Republicans and conservatives are implying it's inevitable.
The day after elections it will become an issue again. The deficit commission will report to the president after Election Day. It will be a major recommendation, I assure you.

Even if (or maybe because?) the Democrats lose the House this Fall, expect this tax to be passed before they leave in Jan 2011.

[Shapley]

The Democrats have had a love affair with the VAT for over a decade, but it is a secret affair. Every now and then the let a little hint slip from their lips, but for the most part, it is a mistress that must remain hidden in the shadows until the time to reveal her.

As you noted, most of it is hidden to the purchaser, who only sees the amount added by the retailer. The rest was added into the price along the way. Theoretically, each time a processor or handler added value to the product, they paid a tax on the increase and passed that price to the next processor/handler. Thus, the more handling, the more taxes. Small wonder the Democrats love it, since it is a sneaky way to raise revenue.

[dai bread]

When I started work, all we had was income tax and sales tax on what were, at the time, considered "luxury" goods. Whiteware, bicycles, radios, cars. (TV came later). We were (and still are) exhorted to save. What with? We cried out for years for a tax on consumption, and finally we got it in the form of GST, which is a value-added tax. When it was introduced, we got a hefty reduction in income tax to ensure revenue neutrality.

I am a fan of GST as operated here. It's on almost everything (exports are the big exception) and it's at a flat rate. At present it's 12.5%, but that's likely to rise to 15%. We have been promised a reduction in income tax and an increase in benefits and pensions to ensure revenue neutrality. We await developments, but have no reason at present to doubt the politicians' words. They know they'll be out at the 2011 election if they try to cheat us.

I am not a fan of British or Australian VAT, with their multiple rates and multiple exceptions.

[Haggis@wk]

I am a fan of GST as operated here.

We will retain (and raise) our income tax and add VAT. Our income tax is set to rise 20% next year when the Bush tax cuts expire, the new health care taxes begin, and proposed Obama taxes are enacted.