The VAT Man Cometh!

We are approaching the weekend before April 15th. Now that may not mean much to those outside these United States or the people in Lake Havasu, which is pretty much the same thing.

So let me describe to them the ritual involved. First one drags out all the checkbooks and a cookie tin of receipts from the previous year and with a calculator, a powerful cocktail and an even more powerful cocktail of muttered curses, the great American public gets ready to “render unto Caesar”. Yes, it’s tax time again.

I keep waiting for Hallmark to bring out cards honoring this annual ceremony and I envisage something like Halloween cards but with Obama depicted as Scrooge. Now Scrooge had his specters but an even more scary apparition appeared this week on the American scene as Paul Volcker told his ghost story.

Volcker works for Obama and is the chairman of the newly formed “Economic Recovery Advisory Board” and he floated the trial balloon of a Value Added Tax (VAT) in this country. This monstrosity is well known to Europe and elsewhere and it is their politician’s favorite tax. Let me explain.

A politicians first chore after election is to do whatever is necessary to insure reelection. The second is to spend money. Not their money you understand but anyone else’s is fair game. And the more the better and the sooner the better.

VAT does the latter because at every stage of production the tax authority gets a cut. Of course, at the end of the process, the eventual purchaser pays the piper but, in the meantime, the government has some money. Not all of it, but in the mind of a bureaucrat or a politician, anything is better than nothing. Now, contrast that with the process here.

For a start, there is no federal equivalent to a sales tax. Some states have one and some don’t but, even in the ones that do, the taxing authority gets nothing until the item is sold. So any money comes later and not sooner.

As tax day approaches in the United States, it was revealed that 47% of Americans will pay zero income tax. And, before anyone leaps on that as evidence of some kind of social injustice don’t overlook all the refunds including the “Earned Income Credit”.

On the other hand, the top 10% of taxpayers provide 74% of the Internal Revenue Service’s income.

But therein lies the problem for Obama and his “drunken sailors” on Capitol Hill.

47% are not paying federal taxes and they haven’t been able to figure out a way to screw those people too. Until now with VAT.

Because everybody pays VAT, even the poor, which would represent another promise broken. But what else is new?

And, in Europe, they never see the tax. It’s embedded in the price tag. So it’s so easy to up the rate whenever the need is felt.

Don’t believe me? At the start of 2010, the UK rate for VAT went from 15% to 17.5.