Opinion Forum

An Immodest Proposal

April 21st, 2011

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.

Articles written by Brian Bagent
Tags: business, debt, Europe, Fair Tax, income tax, profit, taxes, U.S., VAT
Categories: Economics, Politics | Comments (5) | Home

5 Responses to “An Immodest Proposal”

Tom Carter | April 22nd, 2011 at 4:14 pm

No doubt we have to increase revenue, in addition to reducing spending. Maybe a complete overhaul is best — maybe a VAT plus a clean flat tax on income. You’ll never see the 16th Amendment repealed, but at least you could still burn the tax code.

Speaking of “us,” remember what Pogo said: “We have met the enemy, and he is us.”

Brian | April 22nd, 2011 at 11:36 pm

Tom, a VAT would be a disaster for the same reason a corporate income tax is – too many people think that corporations must pay their “fair share.” The corporations remit the tax, but their customers pay the tax.

Tom Carter | April 23rd, 2011 at 7:13 am

I’ve spent many years in countries with a VAT, and I think people pretty much understand what it is and what it does. Like any other sales tax, it has the advantage of letting people have at least some control over how much tax they pay through buying decisions. That, plus reform of our current income tax — eliminate virtually all deductions, spread the burder a little more evenly so that almost no one pays no tax at all, and tax the wealthy a bit more. Or, institute a flat rate for everyone. Seems like a good mix to me.

d | April 26th, 2011 at 8:59 am

The Fair Tax,is the only way to go. Pay tax on what you purchase,nothing more. Then,if you do not wish to contribute to taxes,you may opt out,by not making purchases. This entire country needs to learn how to live with less stuff,for certain.
I do not know how we would pay for our schools,under the fair tax,though. How would that work,Brian? Those with children in school would pay for it? That would make too much sense. Then,of course,someone else would have to pay for those children brought into the world,by parents without enough,or any,income to pay for their schooling and food. No wait,we do that now.

Brian | April 26th, 2011 at 12:00 pm

The Fair Tax would be a federal tax. Since it’s at the federal level, it cannot address local/state sales or property taxes. If states and municipalities have sales and property taxes now, I imagine they’d have them under a Fair Tax as well.