A.J. DiCintio
A tax snake in the grass
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By A.J. DiCintio
December 19, 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 in VAT taxes had previously been paid 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 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 those problems, politicians go gaga over the VAT's 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 which 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 the doctor's office: "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.

Now that the question about the "many" has been answered, we know 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 that inestimably valuable phrase bequeathed to us by the ancients:

like a snake in the grass.

© A.J. DiCintio

 

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A.J. DiCintio

A.J. DiCintio posts regularly at RenewAmerica and YourNews.com. 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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