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To VAT or not to VAT?

All the news about passage of the small business lending bill or the ongoing debate over the Bush tax cuts is blurring the real elephant in the debt and deficit deliberation: President Obama’s deficit reduction commission.

This 18-member commission is slated to come out of the shadows with its report on how to deal with the nation’s $13 trillion debt, but not until after the November elections (go figure). However, early comments by commission leaders indicate that restoring fiscal balance will require slashing government spending — this Congress will never do that — along with implementing major tax increases (surprise, surprise!). In addition, the commission is also reportedly eyeing the elimination of hundreds of individual and business tax breaks to reduce the $1.4 trillion federal budget deficit.

But let’s get real. Both this Congress and the administration advocate more spending, not less. Truth is, right now, all federal revenues are being consumed by just three programs: Social Security, Medicare and Medicaid. The rest of the government — funding for two wars, veterans, homeland security, education, cultural arts and everything else in the discretionary budget — is being financed by borrowing from China and other countries. You’d have to be in a coma to believe Congress will slash spending (borrowing) for these programs. So what’s left but raising revenue.

Enter the Solomonics who will proclaim in their report, “Let there be VAT!” They’ll have little choice, really. Dumping tax deductions won’t raise nearly enough to fund our government’s bloated spending. Moreover, a VAT — or value-added tax — is a politician’s dream. It’s expedient, it’s essentially hidden, and it will generate a river of revenue. Experts say every 1 percent VAT can deliver up to $1 trillion a decade. Say cash cow!

If our government didn’t need trillions more in revenue before, it does now. Obamacare alone is the largest entitlement expansion in 40 years and, by far, the most expensive. Welfare-state programs like that are why all of the members of the European Union have a VAT ranging from 15 percent (5 percent on some reduced items) up to a whopping 25 percent.

In effect, then, a VAT is essentially the same as a national retail sales tax. And while from time to time the idea of imposing a national sales tax has been trial ballooned, it has always been shot down. So politically speaking, that won’t sell. Ah, but a stealthy VAT — well, that could play.

Now, as a replacement for our income tax, a VAT might be a welcome idea. After all, taxing consumption is an idea that makes a lot more sense than taxing our work, which is what our income tax does. In fact, Erskine Bowles, co-chair of the debt commission and former chief of staff for President Clinton, has said he favors putting in a tax on consumption. But no one here is talking about replacing the income tax. No, a VAT would be on top of our income tax.

So if a VAT is in our future, how will it work? What effect will it have on our industry? Is it something to love or to hate, to fight or accept? I’ll have some answers in Thursday’s Dealer Outlook.

Comments

4 comments on “To VAT or not to VAT?

  1. AnonymousBob

    Wow, Norm, your partisan veins must be popping out of your head after that rant!

    You mention VAT and income taxes amongst EU members and how they would be disastrous for the US. Have you not noticed the decline in the strength of the US over the last few decades? The US ranks alarmingly low on many global scales, such as education performance, income inequality, meager health care coverage, and an increasing number of people living in poverty. Yet, capitalism is supposed to be the panacea for all that ails us. Hmmm, maybe I’m missing that connection because the decline in US power the last few decades seems to indicate that maybe unbridled, unregulated capitalism isn’t really the answer. Maybe if you’re in the top 10% of income earners, it is. But, for the remainder of the population (a/k/a Middle Class) that you rely on for your income, maybe that capitalistic, winner-take-all philosophy is the wrong medicine to be prescribed.
    I agree that something needs to be done, the first of which is to close ALL tax loopholes and shelters. There are too many studies showing the uber-wealthy utilize those gray areas to avoid income tax and they do it quite easily and readily. I don’t blame them, but if the US wants to start righting the ship, then those that make their money off society need to personally give back to society in the same manner as the rest of us. Yes, yes, I understand a lot of these people own/run businesses that create jobs, pay corporate taxes, and the like. However, these people also work the system with their personal incomes in order to keep more of their money that they made by relying on society buying their product. It’s a give and take all around, not merely take, take, take.

    We all have suffered tremendously, but only after partying quite hard during the boom times. The resolution to the situation isn’t an overnight thing and is going to require even more tightening of the belt. We the people are going to have to do this on our own because government is only getting in the way.

  2. Paco Sanchez

    At one time a Stamp Tax enraged enough people in this country to cause a revolution. The amount of taxation at that time (1776) was paultry compared to what citizens pay today. While I am not advocating a revolution, there are more people in this country today talking about it. And today (God forbid) VAT rolls out. Tomorrow another major tax levy rolls out, and year after year this out of control spending continues. Where does it end? It ends when the taxpayers say it is enough, via another revolution. It has become time to tell congress the spending days are over, we have had enough. We do not wish for the way of life that has been created to be ceased by overpending.

    Everything can be justified, even VAT, however in the long range scheme of things, it is another step towards the end.

  3. Byrd Gossett

    all you have to do is look at the related posts on your page…they almost all deal with Gov’t regulation in some form or another, negatively affecting people who work and can afford to spend a little on their lifestyle. There is no reason to give the Gov’t., one more way to steal our money and give it to somebody else. Flat tax? Sure. VAT? hell NO!! those who don’t know the difference, deserve what they get. All I can say is VOTE IN NOVEMBER!!!

  4. Free thinker

    YOU GUY’S THAT COMPLAIN ABOUT HIGHER TAXES ARE A JOKE. The true plan is not to raise the taxes on everyone and every business. If you keep listening to Glenn Beck and Shawn Hannity you will think the world is coming to an end.

    Folks, please do your own thinking and your own research.

    Here’s the simple facts. The Gov. is going to raise taxes on people making over $250K or more. When this happens most of you in the marine industry will not be effected. GET REAL! As a part time tax preparer (extra money needed becuase I’m in the marine industry) I see all those great deductions you tax full advantage of. What’s the saying, “the top 5% of income earners pay 30% of total taxes”. If the “Bush tax cuts” end for the people making $250K revenue will go up and the gov. speading will stop and the gov. will start paying done the debt.

    Here’s the bottom line. There’s a huge group that wants our gov. to fail at all levels. Do you want to be apart of that group or do you want to help this country be a better place for everyone to live? If you are part of the group that wants the gov. to fail then get ready for more of those great deductions that we all love to take. What would happen to our industry if the gov. ended the second home deduction or eveb worse a luxury tax?

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