Saturday, May 29, 2010

CHRIS LADD OP-ED:Falling into the VAT

By Chris Ladd

As professional Washington scrambles to find ways to curb deficits without having to make hard decisions on spending, they are honing in on the idea of a national sales tax, usually called a “value-added tax” (VAT). The VAT is common around the world, but lots of things like malaria and Marmite are common. That doesn’t make them any more attractive.

A VAT is better concealed than the sales taxes you pay now. Ordinarily the tax does not appear on your receipts as it is calculated into the cost of a transaction. It is effectively invisible, allowing governments to quietly raise costs to extremely high levels – 17.5% currently in the UK for example.

Although certain essentials like food are usually exempted or reduced, the VAT applies to everything else. Imagine for a moment what that does to the price of a car. Since it only hits purchases, it is extremely regressive. People living on a low income who have to spend nearly everything they earn pay a massively higher share of VAT than higher income people who have more discretion over their spending. It is, in summary, pretty nearly the worst tax idea in the world.

If you believe, as I do, that our levels of public spending are simply unsustainable; if you believe as I do that we have a broken political system incapable at present of reining itself in; then the VAT is a huge mistake. It allows us to kick this can down the road while building a government even bigger and more reckless.

Once again for emphasis, the VAT is a terrible idea.

This will be incredibly unpopular right, so what’s the problem? It would presumably fall to the GOP to be the main opponent of such a tax, but radicals inside the Party have been writing VAT planks into state platforms for years. What? You didn’t know that the GOP is the Party of VAT? Chances are there are a lot of eye-popping provisions in state and local GOP platforms you haven’t heard about.

The 2008 Texas Republican Party Platform, for example, enthusiastically embraces the VAT. The Texas Republican version of the VAT is arguably even worse than the one the Democrats are mulling. It would double-down on the terrible characteristics of that tax by eliminating the IRS and replacing it entirely with sales taxes. For reference, that would mean federal sales taxes somewhere between 50-90%, with state and local taxes on top as icing, an estimate taken from Bush Administration calculations. You read that right; the Bush Administration investigated implementing a VAT.

Why would conservatives indulge in such a ludicrous idea? Part of it is the general anti-thought, nutjobby mood that prevails right now. Part of it relates to the ridiculous fantasy we have been pedaling that half the country doesn’t pay federal taxes.

Under the Texas GOP plan if I took the hundreds of millions of dollars I earn a year (you don’t know for sure…) and kept most of it in a mattress, presumably a very large, lumpy mattress in a secure location, my contribution to the nation’s upkeep could be a miniscule percentage of my income. Meanwhile a working family of four would labor away to buy fighter jets. The same Bush Administration analysis found that this plan with reduce taxes on the highest 1% of earners by almost half, while the middle class burden would double.

Lord knows it’s about time we soaked those middle-class fat-cats.

Once again, we find ourselves in a position to be hamstrung by the nutjobs we’ve allowed to run the asylum. If the Obama Administration in fact (and there are real doubts about this) intends to pursue a national VAT, we will have to explain why we were for it before we were agin’ it.

ABOUT THE AUTHOR: Chris Ladd is a moderate Republican who writes for the online publication Republicans United

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