Gary North’s Reality Check (Nov. 9, 2012)
I begin with North’s law for dealing with political Keynesians: “When you’ve got them by the boondoggles, their hearts and minds will follow.”
On January 1, 2013, federal taxes will go up. There is no way around this. One way or the other, federal taxes will go up.
There are some questions associated with this forecast. First, which taxes will be going up? Second, who will wind up paying most of these taxes? Third, what effect will this tax increase have on the American economy?
Obama is beginning to sound as though he is ready to compromise in some way with John Boehner over some kind of substitute tax program. Boehner is making similar noises with respect to his willingness to compromise in some way to work out a deal with Obama. The problem is simple to state: (1) Boehner has said that he will not accept any tax revision that places additional taxes on the wealthy, and (2) Obama is philosophically opposed to anything that is going to raise taxes on the poor.
THE VICIOUS VAT
The tax that would really generate a great deal of revenue is the value-added tax. The VAT has been used for a generation in Western Europe to extract enormous wealth out of the taxpaying population, which is everyone.
The VAT has this advantage from the point of view of the government: there is no escape. The tax is imposed on all profitable transactions along the chain of sales. Any business that makes a profit is going to have to pay the VAT. There is no way to hide from the tax collector. He collects mostly from businesses, and businesses have detailed records of what they spend. The digits are easily available. So, there is no place to hide.
The other advantage of the VAT is that it is paid by everybody who makes a retail purchase. It is not exactly a sales tax, but it is close to it. If you buy a product, you pay your share of the tax that was imposed on the retailer. If you do not buy, the retailer is hurt, because he has paid the wholesaler. The wholesaler has to get his money back, because he already paid the tax when he purchased the item from the producer. The producer paid the tax when he bought raw materials in the open market.
From bottom to top, everybody pays on any profitable transaction. This means that it is a comprehensive tax, in a way that no other tax is. It is comprehensive in the sense that everybody who makes a retail purchase pays it, and also in the sense that no business can escape it. This is why it generates so much revenue.
The problem with the VAT for Obama is that it is a flat tax. The poor cannot escape from it. If they buy something, they pay this tax. Even worse from the point of view of Obama, everybody pays the same percentage. Rich and poor, middle class and lower middle class, everybody who makes a retail purchase is paying the same percentage of his income.
This is why the Democratic Party never comes out in favor of the VAT. The VAT is ideologically irreconcilable with the wealth distribution policy of the Democratic Party. The Democrats want the rich to pay a higher percentage of their income to the government than the poor man pays. With the VAT, everybody pays the same.
The big problem with the VAT is that Republicans would probably favor it over any other kind of new tax. Precisely because it is a flat tax, which means that, from the point of view of modern political rhetoric, it is a regressive tax, Republicans would be more willing to vote for this than for an increased percentage of extraction from the rich. Reverse this argument, and you have the Democratic Party’s view of the VAT.
(For the rest of the article, click the link.)