Friday, October 2, 2009

National Value Added Tax Considered - Tax Increases Ahead

We're broke ... time for a new tax: Given the country's fiscal hole, former Fed chair Paul Volcker and many tax experts say there may be a need for a value-added tax. CNN article.

Look out, here come higher taxes. And, if the value added tax is the means to raise additional revenue, it is a hidden tax.

Almost everyone agrees that we must get our fiscal house in order at the national level, and that means eliminating the huge deficits which are causing the national debt to skyrocket. Where there is little agreement is how to do it. Many think expenditures must be reined in. “Progressives” cited in the article think tax increases are in order.

What is likely is at least some tax increases (whether we like it or not), and to avoid increasing taxes on the poor (defined as anyone making less than $250,000 apparently by Obama’s rhetoric) and to avoid excessively high marginal rates on the “rich”, some experts are looking for an alternative. And that alternative is available from European experience – the value added tax.

“A VAT is tax on consumption similar to a national sales tax. But it's not just paid at the cash register. It's levied at every stage of production. So all businesses involved in making a product or performing a service would pay a VAT. And then the end-user -- such as the retail customer -- ponies up as well.”

A major problem with the value added tax is that it further burdens business, and discourages job creation. It also compounds in multi-stage production systems. Further, it is a hidden tax, as few average citizens will pay the tax directly, and not notice when future increases occur. Need another giveaway program? No problem, just raise the value added tax, as average voters won’t care.

If additional revenues are needed, it would be far better to enact a national Fair Tax, which also is a consumption tax, but does not discourage businesses creating jobs, investing, saving and earning – and is much simpler.



  1. As August 3rd approaches I would like to know where you stand on the Michigan Fair Tax. Have you read it? Do you agree that it would give Michigan a competitive advantage (finally somewhere – somehow)

  2. Indeed. The Fair Tax is transparent (one-time on the final retail sale of new goods only). It is easy and inexpensive to collect eliminating the underground "cash" economy and takes corrupting "special favors" out of the hands of politicians.

    Additionally, it protects the poor by providing a "pre-bate" to cover the tax on essentials, thus taxing only discretionary spending.

    For more, Google Michigan Free Tax... This alone would drive business and jobs back to the Wolverine State.