Archive for June 10th, 2011

The Value Added Tax (VAT)

The income tax has one big advantage:

It HURTS.

If we had a Value Added Tax the deficit would not be such a big issue. There would be a lot of yelling by conservatives, but the solution would be just to increase the VAT by a few percentage points.

With America’s present dependence on income tax, the debate includes exactly who pays the increased income tax, and everybody but welfarees pays the thing. So we have the kind of debate Europeans, who depend on the VAT, do not have.

Budget politics is a matter of visibility. So pork billions are added on simply because a few millions get completely lost in trillion dollar outlays.

The European living standard is much below the American, but the per capita income, which everyone relies on, is very close. Americans used to go to Europe and get excellent deals. But now living in Europe, including Canada, is a major financial sacrifice.

Prices in Europe have been driven sky high by the Value Added Tax.

Normally things are more costly in different countries. But I am still looking for one single thing, including Canadian whiskey, that is cheaper in Canada than in the US. People regularly drive all the way from Ottawa to the US border to do their shopping.

It is probably not ideology that makes Europeans hand out all those public goodies. It seems to me more likely that it is the VAT.

Bob Hope once said that the difference between Communism and capitalism was that under capitalism he got to see his money before it went to the government. In his day the income tax on above $300,000 a year was 91%.

Naturally that bracket yielded almost nothing because anyone who reached it could afford tax advice. Only professional athletes, especially boxers, got caught in that bracket.

But the 91% did distort the economy enormously by distorting investment and putting a limit on how much productive people worked. That top rate became major news when Joe Louis got ruined by it.

The income tax has to be discussed in detail, and every group makes it public. The Value Added Tax increases price wildly, but every group wanting more government money has the same advantage a pork-driven congressman does.

In a VAT economy the general tax increase is a general thing, while each expenditure gets specific attention.

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