Like It or Not, VAT's in Your Future
don't like it, nor do liberals. No one loves the value-added tax,
but the VAT is looking better all the time. Expect to hear more
nice things said about it in the months to come.
A VAT is
basically a national sales tax. America doesn't have a VAT. European
countries do, and they're not shy about letting it rip. Britain
charges a 17.5-percent VAT on everything people buy. In Denmark
and Sweden, the VAT is 25 percent!
don't like the VAT because it's a politically easy way to raise
taxes. And it greases the skids for big government programs. Europeans
will be the first to tell you that their sales taxes are how they
pay for universal health care, lush unemployment benefits and
the rest of the dolce vita.
On the other
hand, a VAT takes pressure off the income tax -- a tax that most
conservatives hate like no other. It taxes consumption only and
doesn't penalize investments. Some conservative reformers want
to completely replace the income tax with a VAT.
don't like the VAT because the poor spend a bigger percentage
of their income than do the rich -- so more of their income gets
taxed. (However, the rich do tend to buy more stuff overall.)
Furthermore, everyone gets taxed at the same rate: In Italy, the
seamstress and the corporate lawyer pay the same $20 sales tax
on a $100 baby carriage.
On the other
hand, the VAT makes possible the generous government programs
that benefit seamstresses more than attorneys. And it helps achieve
other societal goals. For example, environmentalists who want
high gas taxes to discourage fossil-fuel consumption need only
wait for a European-style VAT.
The income tax is rigged against ordinary people. Working stiffs
have the income tax ripped every week out of their paychecks.
Our Byzantine tax code lets rich people play with the numbers.
Guided by daring accountants, business owners and investors can
do creative things to lower their declared income and thus avoid
paying income taxes. But they can't escape the VAT. When they
buy their Learjet, Mercedes CL600 or Chanel suit, the VAT will
The VAT would
also force members of the underground economy to share the burden.
We speak of criminals, nannies, illegal immigrants and others
who get paid off-the-books -- under the Internal Revenue Service's
radar. The shadow economy is almost $1 trillion in size -- or
about 9 percent of the U.S. economy. If there were a VAT, underground
workers would start paying taxes whenever they purchased a lawnmower,
disposable diapers or a flat-screen TV.
conservatives are probably the saddest new converts to the VAT
idea. They bought into the theory that tax cuts would force reductions
in government spending. Lower taxes, they said, would "starve
But the Bush
administration's spending spree has them utterly demoralized.
As an example of their despair, conservative economist Bruce Bartlett
bitterly attacked President Bush for ramming a $23 trillion expansion
of Medicare "down the throats of the few small-government conservatives
left in the House."
with lower taxes, the steroidal spending has sent federal deficits
into a dangerous upward spiral. Eventually, the financial markets
will force discipline on these reckless fiscal policies -- and
in ways that may prove most unpleasant for the economy.
conservatives don't want an economic meltdown, so they are throwing
in the towel. Bartlett wrote that he and other conservatives now
"conclude that starving the beast simply doesn't work anymore."
A VAT would be the best of the ugly alternatives.
And so we
have shrink-government types promoting the very tax that Old Europe
uses to support its cradle-to-grave programs. A minute of silence
for small-government conservatives.
of wrestling with form 1040 still fresh, Americans should be open
to considering a vastly more simple way to pay taxes. It was in
the name of both simplification and fighting tax evasion that
most of India recently introduced a value-added tax. The tax is
controversial, but it will stick.
the VAT has proven an efficient way to collect revenues. No one
has to love it, but just remember two things: A VAT makes everyone
pay for government and lets government pay its bills.
Providence Journal Co. Distributed by Creators Syndicate
This Article to a Friend