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AJ
DiCintio
A Tax Snake in the Grass
December 18, 2009
Catherine Rampell’s NY Times
article about the value added tax ("Many
See the VAT Option as a Cure for Deficits”) evokes a number of reactions, one of
the most important of which is "Who are the many”?
Now, before that question is answered, a definition of the VAT, a brief
example of how it works, and a few comments about it are in order:
Basically, the VAT requires a business to pay a tax on a
product it sells, minus VAT previously paid in the item’s production.
For example, here is what happens when a dining
room table is produced and sold under a 5% VAT. To keep things simple,
the presumption is that wood is the only commodity needed in the
process.
1. A logging company sells a $100 load of logs to a finishing mill, adds
a $5 VAT to the bill, and remits the tax to the government.
2. After milling the logs, the mill sells the resulting lumber to a
furniture manufacturer for $200 plus 5% VAT for a total of $210.
However, the mill remits only $5 to the government because it gets to
subtract the $5 VAT it paid on the purchase of the logs.
3. Having completed the table, the furniture manufacturer sells it to a
furniture store for $600 plus $30 VAT but sends the government only $20
because its research discovers that $10 had previously been paid in VAT
taxes on the item.
4. Finally, the furniture store sells the table to a customer for $800
plus $40 VAT but remits only $10 to the government because it learns
that $30 in VAT had previously been paid in manufacturing the product.
5. In the end, the government has received a total of $40 VAT (5% of the
table’s final price).
As is abundantly clear, a VAT is a sales tax, except that it is
collected from a number of sources instead of one.
And like a sales tax, it is a regressive tax, a problem that politicians
will be happy to mitigate with a million loopholes.
Also like a sales tax, the VAT will be politically impossible to apply
to certain products, for example, those sold by the very well-connected
financial industry. Therefore, politicians will exempt Wall Street from
the VAT, ironically pointing out (perhaps correctly) that the "value” it
"adds” to the products it sells is impossible for any mortal to discern
let alone quantify.
However off-putting are those problems of the VAT, politicians go gaga
over its efficiency because they don’t have to do much except sit
back and collect the tribute they love only second to power.
Indeed, it is that very fact that allows Rampell to report the
following:
"...every other industrialized country in the world already has a
value-added tax (as do about 100 emerging countries).”
Well, surprise, surprise that politicians — who loathe efficiency with
the energy of a million billion stars — gush a galaxy of lust over it
when the subject is collecting taxes.
Yet, as violently as the VAT’s efficiency sends their breasts heaving,
politicians do not find it the tax’s most alluring attribute; for it is
the VAT’s hidden quality that has them scribbling love poems that
begin, "VAT is a rose is a rose is a rose.”
Ah, the tax that consumers believe isn’t passed on.
Though you-know-who always pays a sales tax in the end.
The tax that politicians can raise easily but only for "very
important purposes.”
Every you-know-who may not know it; but the truth is that the orgiastic
spree of the past year notwithstanding, Washington’s appetite for taxing
and spending still is and forever will be shamelessly prodigal and
rapaciously insatiable.
The painless tax the public won’t complain about.
But every you and who in the nation ought to demand that taxes be
painful. After all, the following statement by the Dartmouth-Hitchcock
Medical Center has crucially important applications far beyond medicine:
"The purpose of pain is to warn you of impending injury, or injury that
has already occurred.”
The unhappy truths about the VAT revealed, it is now time to identify
those who would love to implement such a tax. And Rampell’s article
serves the purpose well:
"...this once-taboo policy option has recently been invoked ...by many
prominent Washingtonians, including the House speaker,
Nancy Pelosi;
John Podesta, who was co-chairman of
President Obama’s transition team; and two former
Federal Reserve chairmen,
Alan Greenspan and
Paul A. Volcker.”
Good work by Ms. Rampell. However, because she must have been fearful of
running afoul of the NY Times’ strict standards regarding objective
reporting, she didn’t put the "prominent Washingtonians” in context.
So, I’ll do the job.
They are madly tax, insanely borrow, schizophrenically spend Democrats
(joined by far too many Republicans crazed over power and money) who are
irrevocably committed to controlling every aspect of American life from
the level of government most remote from the people.
And they are Wizard of Oz financial gurus whose immersion in the
arrogant, incestuous culture of Washington’s salons keeps them so
meticulously removed from reality that in 2005, they didn’t know enough
even to peep a warning when the ratio of home price to buyer’s income
blew through the (outrageously mortgaged) roof — as far, in the key
market of Miami, to an insane 9:1.
The answer to the question about the "many” actually tells us all we
need to know about the VAT, including that we should never describe it
with laudatory expressions.
Rather, words such as insidious and dangerous ought to
come to mind.
Or the inestimably valuable phrase bequeathed to us by the ancients:
...like a snake in the grass.
About AJ DiCintio
A.J. DiCintio is a Featured Writer for The New Media Journal. He first exercised his polemical skills arguing with friends on
the street corners of the working class neighborhood where he grew up.
Retired from teaching, he now applies those skills, somewhat honed and
polished by experience, to social/political affairs.
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