Tuesday, April 13, 2010

VAT: No value for consumers
A value added tax will be a regressive tax

There has been much talk of late about a coming federal tax known as a value-added tax. Much of the European countries have a VAT in place. Theoretically, VATs are cash cow revenues (theoretical being the operative word). But once implemented, consumption on some goods magically decline in sales and items of necessity also see less consumption.


Take for instance examples set in California and Maryland. In the 1990s, the Golden State faced deficits and budget shortfalls, so the state legislature passed tax increases on upper income earners to raise much needed revenue. But those taxpayers found a loophole in the new tax—they moved out of the state.

Maryland tried a similar tax implementation called a “millionaires tax”. As a result, 33 percent of the millionaires left the state in less than a year.

Moreover, value added taxes are regressive taxes, meaning lower income households pay more percentage wise than wealthy households. Moreover, taxing value increments means passing those costs on to consumers. A drop in consumption will follow and only items deemed as necessities will remain in demand while items not necessary will drop in demand, a cause for downturn in those industries.

And while a federal VAT won’t have the same U-Haul loophole but consumers will have a choice which products they will deem necessary. For consumers it is a permanent artificial devaluation of their earned income as a sort of inflation or pay cut. In either case, it becomes a decision the government has made about your income.

-- Killswitch Politick

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