A Forum for Opinions on News, Politics, and Life
April 21st, 2011
By Brian Bagent
I may be mistaken, but it has probably been a couple years since a trial-balloon was floated regarding implementing a Value-Added Tax (VAT) here in the States. With the way the budget, revenue, and debt are being discussed, it is bound to come up again as a means to “solve” the problems in those areas. Let’s dispel the idea that a VAT is any sort of solution.
What is a VAT? It is a tax imposed upon the entirety of the supply chain from raw good to retail sale. It is levied on the “value added” to a good at each stage of production. The wheat farmer pays a VAT on the sweat of his brow for everything above the cost of the seed, fertilizer, pesticides, fuel, and equipment needed to operate his farm. The miller pays a VAT on everything above the cost of operating his mill. The bread company pays a VAT on everything above the cost of making a loaf of bread. In short, a VAT taxes profits.
If this sounds eerily familiar, it should because that’s exactly the way our income tax works. Those lucky Europeans have two corporate income taxes, not just one.
In Western Europe in the 1960s when VATs were first implemented, they were generally at around 5%. When the EU formed a few years ago, one of the requirements for entry was a VAT of at least 15%. Prior to VAT in Europe, most Europeans paid income taxes comparable to what we were paying in the States. Since the 5% VAT implementation and the comparable income taxes, both their VATs and their income taxes have significantly increased, and they outpace us in income taxes alone.
While a VAT is certainly a more honest and up-front method of taxing people, it still shares with corporate income tax the dubious distinction of masking who it is that ultimately pays corporate taxes. The manner of remuneration of taxes is a different issue than who it is that actually pays for the remuneration of them. The person ultimately responsible for paying VAT and income tax is the final consumer of the product or service purchased — no exceptions, not the person or business that produced that object being rung up at the cash register.
For those of you in business for yourself, what I’m about to write should be axiomatic, but for some of the rest, it might come as a slight surprise. In business, there are two primary ledger columns — expenses and income. The difference between the two will show as profit or loss, depending upon which is greater. It should shock no one that a corporate tax doesn’t go on the “income” side of the ledger, ergo it is an expense, a cost of doing business. All costs of doing business are passed along to the final consumer in the prices of the products he buys. No business would keep its doors open for very long if it were otherwise. Profit, therefore, is what is left over after expenses are subtracted from the final sale price, and it doesn’t matter if the final sale price is that money between the producer and the middle-man, the middle-man and the retail outlet, or the retail outlet and John Q. Public. They’re all in business for themselves and must turn a profit, each in his turn adding a profit margin between what he paid for his product and what he sells that product for.
I mentioned earlier that a VAT is more honest than a corporate income tax, and it is. A VAT is a publicly known percentage of profit; corporate income taxes, what with about 75,000 pages of tax code, are not known by the consumer. Therefore, a corporate income is merely an unknown VAT.
So why should we be against a VAT? Ultimately, it is just another corporate income tax which we, as consumers, ultimately must pay for. Assessing taxes of any kind upon corporations costs them nothing, but it costs the final consumers of corporations’ goods and services plenty. Next time you feel like telling your representative to sock it to those “evil, money-grubbing corporations,” remember that you’re really asking them to sock it to your very own self.
For too long now, politicians of both the left and the right have used income taxation as a cudgel to punish their political foes, or to punish those who do not indicate enough fealty by
bribing having lobbyists entreat them. If it were otherwise, we would have long ago switched to a revenue neutral Fair Tax.
Don’t be lulled by politicians who promise to “fix the tax code.” It cannot be fixed, for by its very nature it invites corruption. A grapevine that produces nothing but sour grapes cannot be fixed, it must be pulled out of the ground and replaced. So it must be for the very idea of an income tax — it is not now, and never should be, a revenue vehicle for free and, most especially, rational people. Repeal the 16th Amendment, and throw all 75,000 pages of Title 26 United States Code and Chapter 26 of the Code of Federal Regulations on the burn pile. This is one set of books that even the philosopher in me says it is good to burn. When the burning is done, salt the earth where the ash-pile sits.
Not do-able, you say? I’m reasonably certain that in April of 1775, there were few colonists who would have professed a belief that defeating the most powerful army in the world was do-able, either. Yet they acted anyway, in spite of the fact that the redcoats were “invincible.” Yes, I understand that there is a veritable army of tax attorneys and accountants, their lobbyists, federal employees, and utterly corrupt politicians who like things just the way they are that are standing in our way. But, no force on earth can stand against free men dictating their own terms.
Xerxes, the King of Persia around 300 B.C., with an army of 350,000 to 400,000 slaves, learned this the hard way against 300 Spartans at Thermopylae, and a year later had it rammed home against 40,000 free Greeks when the Greeks wiped out half of Xerxes’ army in a single day of battle at Plataea. And, I might add, the Greeks fought from the ground with spears and swords only. The Persians had mounted cavalry and archers as well spearmen and swordsmen. Outnumbered and utterly outgunned, the Greeks won.
Our fight isn’t against Redcoats or well-equipped Persians, it is against parasites — lice and ticks and fleas. We might lose battles, but ultimately, the war belongs to us. The time to begin prosecuting that war is now.
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