Today, Daniel Mitchell, a Cato Institute senior fellow, posted an article at the New York Post about Paul Volker's comments recently on the possibility of instituting a VAT (Value Added Tax). Mr. Mitchell points out that a VAT will turn America into a slow-growth, European-style economy, rather than the dynamic economy we are accustomed to. He points out that the proper way to grow the economy would be to reverse the explosion of government spending.
A VAT tax is rather simple to institute--a tax is added to an item at every stage of the manufacturing process. Mr. Mitchell uses the manufacture of furniture as an example. A VAT would be imposed when the raw timber is sold; again when the sawmill produces lumber; again when the manufacturer builds the chair; a tax at the wholesale level, and a tax when the chair is sold to the consumer. To avoid duplicate tax paying, each level of taxpayer is given credit for the previous payment, thus theoretically charging the consumer only the basic sales tax. However, a tax was paid at every level of 'value added'. Doesn't it follow that the businesses who pay that tax at every level will pass those costs on to the eventual consumer--thus increasing the price of every product you buy? You won't see a VAT tax--you will just notice that the price of everything went up abruptly.
The advantage of the VAT would be that if you used it to replace the income tax, it would save all of us a whole lot of paperwork and aggravation! Unfortunately, Congress is looking at the VAT tax as something to add in addition to the income tax.
Mr. Mitchell concludes:
"Today's income-tax system is a nightmarish combination of class warfare and corrupt loopholes. But adding a VAT solves none of those problems, it merely gives politicians more money to spend and a chance to auction off a new set of tax breaks to interest groups. That's good for Washington, but bad for America."
What we need in Washington is not another tax to pay for the increased spending. We need more of our money and less spending. Please remember that in November.
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