Tuesday, April 6, 2010


I could see the administration adopting that as a promotional chant along the same lines as the "drill baby drill" line that fired out the GOP after they were politically neutered in 2008.  And maybe it will be just as effective.

I've been trying to get around to writing on this for a while now that it's the part of European socialism we haven't been saddled with yet.  But the continuing march of the Online Tax Revolt (if you haven't signed up yet, there's something wrong with you) toward engagement in Washington on Rape Tax Day (April 15), as well as the scary insanity of a VAT have made it necessary to speak.  After all, the VAT is what keeps government run health care in Europe going, and since we're already 20,000 leagues under a sea of debt, why the hell not?

Oh, before I get to describing the antithesis of the FairTax, here's the video of the day (and apologies for it being with Huck-a-duck):

In short, it's a matter of finding something better than the mess we have now.  And NEVER letting the government saddle us with the VAT.

Now I know there are a few of you ready to yell "What the FUDGE is a VAT?" (except you didn't use the word fudge).  This is the Value Added Tax.  Now I know you'd like to know the difference between the VAT and something like the FairTax.

Well, without too much detail (lest I write pages), the FairTax is a single retail sales tax (specifically, a consumption tax), applied on the final retail price of all new purchases, and replaces ALL other taxes out there (including the approximately 22% embedded taxes already in everything we buy, leaving retail prices effectively the same).  You can debate the details somewhere else, because this is the gist of it, and enough information to contrast it with the VAT.

The VAT is also in the realm of a sales tax.  However, first and foremost, it is ANOTHER TAX, something that would be added not to replace funding for the government, but to supplement and pay for more shit (like government-supplied health care and studies why the government is in massive debt).

So let's look how this works.  In contrast to  a retail sales tax, the VAT is assessed on all transactions.  Businesses can then recoup the amount of VAT they already paid on the item when they bought it.  In the end, the tax is assessed on the final consumer anyway, except that there's no sane way to actually figure out the VAT on a particular item (whereas a retail sales ax would be a specific percentage which in the case of the FairTax, would be (as proposed) 23% inclusive (when compared to the current Income tax that it eliminates).  Again, the actual percentage, while debatable, could easily be calculated with paper and pencil.

In contrast, let's look at how you'd figure a VAT.  First, a farmer buys seeds, is assessed the VAT.  From Wikipedia:
With a 10% VAT:

  • The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of the raw materials pays the government $0.10.

  • The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20.

  • The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the gross margin of $0.30 (1.65-1.32-.03). 

Now, imagine that assessed on something that goes through 6 manufacturers. And imagine the paperwork added for each initial producer, manufacturer, wholesaler, middleman, and retailer to comply with YET ANOTHER TAX.

And then we get to decide what does and what doesn't get the VAT. Do we assess it on health care? Food? Other needs where the VAT will instantly impact the poor?  And does that mean we have to invent another tax "credit" to offset the tax for the mooching class (Obama voters)?

Again, my goal in general is the reduction of the size and scope and power of the Imperial Federal Government, including radical tax reform.  If anyone can explain how a VAT fits in that, I'd be really interested.


Jerry Critter said...

Rather than all individuals paying a fair tax on their income, why not eliminate the individual income tax, and tax all businesses on their income? It would be a fair tax applied at the business level to the business income, not the individual worker on their income. Seems like pretty much the same thing except it puts the income tax burden on all businesses instead of all individuals.

Dave Miller said...

Patrick, but here's the problem with all of the attempts to actually change the current tax system.

Both sides of the political aisle have a vested interest quo.

The Dems like it because they can push their version of morality via "sin tax" increases and "moral" tax breaks.

The GOP loves it because they offer tax breaks that favor the businesses and "rich people" who support them.

This gives each party leverage with political donors.

How do you propose to get any type of change in this system through a recalcitrant congress?

It is like term limits. Who is going to willingly vote themselves a reduction in power?

That is exactly what the fair tax, and even a blind VAT would do, sap the politicians of their ability to influence behavior [and donations] through tax policy.

Patrick M said...

Jerry: Seems like pretty much the same thing except it puts the income tax burden on all businesses instead of all individuals.

First of all, businesses do not pay taxes. They turn any tax burden into a cost, which is then passed onto the individual. And when you bury taxes underneath lots of paperwork and formulas, politicians can tweak those numbers for their own political gain.

And the worst part of a VAT is that (and yes, that's why it was in caps above) IT'S ANOTHER TAX, not a replacement for the nightmare of our current tax system.

Dave: There are a few politicians out there pushing for the FairTax. And you can bet I'm going to hit my congressman up any chance I get on the subject (and pity the fool if I get him in person).

A radical change in the tax structure will not be easy. I admit that. But you have to start somewhere. And you don't need majorities. Remember, we won independence with only a third of the citizens supporting it, a third fighting against it, and the final third just standing by to see who won.

It'll take work.

Mike's America said...

A V.A.T. would be yet another regressive tax that places an even more unfair burden on lower income people. Of course no one will hold Obama's feet to the fire on his promise not to raise "one dime of any of your taxes" as he's already broken just about every promise he's ever made.

I support a Fair tax too but I doubt it will be enacted for the reasons others have expressed above.

Jerry Critter said...

I am not talking about a VAT. This would not be a tax on production, or "value added". It is a tax on income, same as individuals. We are taxed on income, not on what we produce. In some ways it would be simpler. There are fewer businesses than individuals, and it would certainly be simpler for individuals.

Secondly, businesses do pay taxes. They can only pass on costs to the extent that the market will allow it. If their price goes too high, people will either not buy it or go elsewhere to get it. Price is set by the market. Otherwise businesses would never go out of business. They could always make a profit.

Z-man said...

Ya ever get a friendly letter from the IRS?? You go home and look through your mail and see it and at first you think something's wrong until you open it and then they say they were going through your return and they actually owe you even more money than they originally sent and that you don't have to do anything, just sit back and the check's in the mail. Creepy.

Toad734 said...

The mooching class is the Obama voters?? Hardly, the mooching class are the corporations and ultra wealthy who typically vote Republican because their agricultural, extraction or finance based company they are running requires subsidies, tax cuts and bailouts from the federal government.

And again, your plan assumes that all these manufacturers would cut the cost of their products by the exact percentage of the money they "saved" by not having pay income taxes which we all know is not the case when we look at clothing, shoes and other items that are almost always now manufactured by cheaper labor overseas yet the cost of a pair of Levis, the cost of a pair of Converse has only gone up since these companies started saving money by shutting down factories here and moving them overseas to save money. Just like tax cuts for the rich, it has only made them greedier.

Again, I argue that a revenue neutral tax would keep the cost of everything the same anyway but that's an entirely different subject that we have debated a thousand times.

By the way, that 23% in misleading, it's really 30%. Again, we have been over this time and time again.

At some point we are just going to have to realize that we don't need an empire around the world and will have to stop invading other countries and do away with all the tax loopholes the rich enjoy.

Now that we have made health care cheaper, something that was going to bankrupt the US along with most of it's citizens, we can look to other ways of cutting spending.

Patrick M said...

Jerry: They can only pass on costs to the extent that the market will allow it.

The problem with that is that all companies have to pay the same taxes. So there is no where else to go, so the market always reflects the tax burden. They're not going to cut their profit margin, because that's the only other option, and if that goes, what's the point?

Z-man: One goal of radical tax reform would be to never get a letter from the IRS again. By killing the IRS.

Toad: And again, your plan assumes that all these manufacturers would cut the cost of their products by the exact percentage of the money they "saved" by not having pay income taxes...

I really wish it was my plan. Really. Did you notice we're talking primarily about the VAT?

Which, now that you bring up the fact that the cheap stuff is manufactured overseas, imagine how much more will be once such a business-penalizing tax is added to our already unending list.

By the way, that 23% in misleading, it's really 30%.

Yeah, covered that part above already, and the explanation is on the FairTax site. But since we're really talking VAT....

Now that we have made health care cheaper...

Good one. That's going into the list of the world's greatest lies right net to "I'm from the governmnet and I'm here to help."

Patrick M said...

Jerry: Correction to my initial statement, because I must have really not been reading (it happens sometimes).

But attempting to tax businesses exclusively? Uh, between your comment and now, I wrote a whole post about why no business ever pays taxes. They pass those on to the customer, and add the costs of complying on to the consumer. And if it's on their income, they'll find ways to reduce the tax burden.

And I can't imagine a quicker way to make the recession get worse. Fast.

Jerry Critter said...

"the market always reflects the tax burden"

To the extent that the company is profitable, that is probably true. But using that logic, one can say that businesses never pay for anything. They pass all costs on to the consumer, raw materials, labor, etc, all to the consumer.

So what?

As far as recession goes, I don't know. Certainly the tax burden on businesses will go up, but the individual will have much more money -- no taxes withheld and no income tax to pay. Business will charge more, but people will have more to pay with. In the long run, it is probably a wash.

With the Fair Tax, individuals pay all the taxes. With the Fair Tax on businesses only, businesses pay all the tax. The end result is the same, but it is much easier on the individual. I don't see what is wrong with that.

Jerry Critter said...

"if it's on their income, they'll find ways to reduce the tax burden"

Like the ultra-rich have by reducing the tax on dividend income to 15%?

BB-Idaho said...

"I wrote a whole post about why no business ever pays taxes. They pass those on to the customer, and add the costs of complying on to the consumer" The consumer can choose whether to purchase, as they can choose to participate in a lottery. Since the court has decided corporations are to be considered as an individual, it seems they should be required to pay taxes as we individuals. If they did, the US financial problems would be greatly ameliorated. Novel idea, since we have welfare for the poor and welfare for the rich, how about
some consideration for the middle class?

Toad734 said...


Lets see the list of promises Obama has broken.

And lets not forget these:
"Read my lips, no new taxes"

"I'm worried about an opponent [Gore] who uses nation building and the military in the same sentence."

"I don't think our troops ought to be used for what's called nation building."