Beware The VAT
By Harris Sherline
October 8, 2009
The Obama administration is turning over every rock it thinks might be hiding a tax that can be imposed to solve the growing problems created by their massive deficit spending. Following is a partial list of the major financial commitments Obama has already made:
A deficit budget that is now expected to exceed $9 trillion over the next ten years,
The $700 billion Troubled Asset Relief Program (TARP),
The $787 billion Stimulus bill,
The proposed health care plan that has been scored by the non-partisan Congressional Budget Office at $1.6 trillion,
The $3 billion Cash for Clunkers program, and
The "Cap and Trade" program, which will significantly increase the cost of energy.
And to think, all this has been done in just the seven months since Obama became president. With almost three-and-a-half years remaining in his term in office, there's no telling how much more of the taxpayers' money this spendthrift president and the Congress will go through.
However, the big question is: Where will they be able to find enough money to pay for all the additional commitments they plan to make, in addition to those that are already on the books?
Obama is now faced with a dilemma: If he continues to spend money without having the revenue to pay for it, he will further exacerbate the financial disaster he has already been launched and is leading the nation down the path of inflation to the possibility of hyperinflation. It could result in the complete destruction of the nation's monetary system. However, even if he stops spending, he will still have to increase the federal government's revenue by trillions of dollars.
So, it's clear that he will have to increase taxes.
Increasing income taxes across the board will violate Obama's promise not to increase the taxes of the middle class by "one dime," specifically anyone whose income is under $250,000 a year. And, although taxing the rich fits his social and economic models, it can't possibly generate enough revenue to pay for everything that's already on his plate, let alone any new programs, such as health care. Since the top 5% of wage earners already pay over 54% of all federal income taxes and the top 10% pay almost 66%, it's clear that it will not be possible to pay for tens of trillions of increased expenditures by taxing "the rich." Even the total federal income tax revenue of around $11.15 trillion would not come close to paying for everything (2007 IRS statistics).
In addition, a national sales tax would also be a problem, because it is already an important source of revenue for most states. Forty-five of the fifty states have a state sales tax, ranging from 4% to 7.25%.
This doesn't leave Obama with many other options.
Enter the Value Added Tax (VAT). The VAT is a consumption tax that is "levied on any value that is added to a product." (Wikipedia) It differs from a sales tax, which is levied only at the point of final consumption, by being imposed on the "value added" at each stage of production through the manufacturing and wholesale processes.
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