What's a Value Added Tax ( VAT) you ask? Well, like I said, it's a Tax on everything.
VAT is a tax assessed and collected on the value of goods or services that have been provided every time there is a transaction (sale/purchase). The seller charges the VAT to the buyer, and the seller pays this VAT to the government. If, however, the purchaser is not an end user, but the goods or services purchased are costs to its business, the tax it has paid for such purchases can be deducted from the tax it charges to its customers. The government only receives the difference, in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain.
According to the European Commission, the average budget deficit for 2010 will likely be 7.5% of GDP, a percentage point or two below what the US deficit will be without a VAT. As we've seen, folks drunk with power, just like those overly lubricated with alcohol, can make all kinds of promises that are quickly forgotten as soon as they need their next drink. I'm sure you recall that no one making less than $200,000 would pay a nickel more in taxes and that health care reform would reduce the cost of health care. If eliminating the deficit was really a national priority, the folks who decide what the government is going to spend each year would be in a massive belt tightening mode; but government giving up the sauce just isn't in the cards. Instead, their attitude is why should we cut our budgets, when it is within our power to make you cut yours?
So, if it won't do away with the deficit, and it's as unlikely to restore fiscal discipline in Washington, as one more drink is to sober up the drunk, then what can we expect from the VAT tax, aside from more welfare programs? For starters, you can expect to pay higher prices for everything you purchase, and as a result of increasing the price of everything, you should expect the demand for everything to fall and along with it the volume of all goods and services produced. How many additional employees do you need to produce less? This sounds to me like a recipe for an economy on the rocks, with even higher unemployment than we are currently choking on. Maybe we can make our chronic unemployment rate permanent like our brothers and sisters in Europe have done. They seem to have gotten used to a rate that is two to three times what our unemployment rate has averaged over the past twenty years. Perhaps it's an acquired taste, like scotch or gin?
Don't worry you say, the President's Budget Commission is sure to deal with the deficit. Don't kid yourself! The President's new Budget Commission is just a diversion from reality. It is but a group of stammering, stuttering politicians who will will seek to convince you just how sober they are; whose pretense will be to convince you and me that there is just no way to cut government spending any further, and the only way out of the nation's fiscal troubles is to raise more revenue. After all, everyone knows Obama has frozen the spending on 13% of the budget already; so what else is there left to do?
What our representatives fail to see is that the way out of a spending problem is to stop spending, just like the way out of a drinking problem is to stop drinking. But we all know addictions can be difficult to break, and sometimes you have to hit bottom before you can admit you actually have a problem and seek help. I'm thinking that their political bottom is coming, and they'll be free to spend some much needed time in rehab, come November.