Obama suggests value-added tax may be an option

[Rozman]

From what I understand of it if that's true it's because it's the easiest to disguise and it's the easiest to raise along the way without too many people knowing it just went up.This President is all about grabbing power and spending to get his agenda to remake America into a place that He and Michele can be proud of for the first time in their adult lives.

 

[Toro]

A VAT is one of the most efficient taxes.

But I can't see it. I don't think it would get through Congress.

I'd rather see them cut spending.

This congress?

it would be a slam dunk.

Queen Nan has been talking about it for 4 years.

I don't think they'd get enough Blue Dogs in Congress to pass it.

 

[Xenophon]

A VAT is one of the most efficient taxes.

But I can't see it. I don't think it would get through Congress.

I'd rather see them cut spending.

This congress?

it would be a slam dunk.

Queen Nan has been talking about it for 4 years.

I don't think they'd get enough Blue Dogs in Congress to pass it.

there are no blue dogs, they proved that with Barrycare.

 

[boedicca]

As a tax, a broad based consumption tax is very efficient because it does not discriminate between economic transactions nor skews the allocation of resources.

Many conservatives argue for a VAT over an income tax for this reason.

I know you think that sounds good - but it doesn't work that way in reality (and a lot of fiscal conservatives do not support VAT.)

VAT as practiced in Europe, which is the likely model if adopted in the U.S., does discriminate. Products which are very similar can be treated differently by the taxing authorities. I've posted this before, but it bears repetition:

However, wait until the folks at the IRS get their hands on the regulations for the application of the new tax. They will undoubtedly turn to their more experienced British counterparts for guidance.

"Food of the kind used for human consumption," to a British bureaucrat, is something "the average person, knowing what it is and how it is used, would consider it to be food or drink; and it is fit for human consumption. . . . The term includes . . . products like flour, which, although not eaten by themselves, are generally recognized food ingredients . . . [but] would not usually include . . . dietary supplements, food additives and similar products, which, although edible, are not generally regarded as food."

And so, in the United Kingdom, according to the regulations of Her Majesty's Inland Revenue Service, crackers made from tapioca starch carry no tax; prawn crackers made from cereals do. Frozen yogurt that needs to be thawed before eating is zero rated, frozen yogurt bears the tax. Get it? If you don't, too bad—Her Majesty's tax collectors are not in the habit of offering an explanation for their regulations.

Food for animals creates other problems. If it is "suitable for all breeds" it is taxed, but if "it is held out for sale exclusively for working dogs" it is not, unless, of course, "it is biscuit or meal," in which case it is taxed.

So dog food for "sheepdog breeds" is taxed, but dog food for "working sheep dogs of any breed" is not; food for greyhounds is taxed, food for "racing greyhounds" is not. This may be the only tax in Britain that favors work over leisure.

Clothing also presents a problem for the British tax man. Two problems, actually.

First, what is clothing? Well, sailors' lifejackets are clothing because they "have the form and function of clothing," but "buoyancy aids" are not. Second, since children's clothing is zero-rated, what fits into that category?

Bras up to and including size 34B; body stockings that measure no more than 27½ inches shoulder to crotch; babies' shawls but not "mother-and-baby shawls intended to wrap around both mother and child." There's more, lots more, but you get the idea.

Irwin Stelzer: Small Bras and the Value-Added Tax - WSJ.com


It also is an easier vehicle through which to raise taxes:

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.

Thanks to the recession and the stimulus, U.S. federal debt held by the public has now reached about 63% of GDP and is headed higher, but the OECD forecasts that the 30 wealthiest nations will see debt burdens "exceed 100% of gross domestic product in 2011." Debt levels in France, Germany, Spain and Italy are expected to have increased by 30 percentage points of GDP from 2008 to 2011. Greece has a VAT rate of 21%, but its debt as a share of GDP is 113%.

The very efficiency of the VAT means that it throws off huge amounts of revenue that politicians eagerly spend. The VAT thus becomes an engine of even greater public spending. In Europe, average government spending was about 30.2% of GDP when VATs began to spread in the late 1960s. Today, those governments are more than 50% larger, with spending of 47.1% of GDP on average. By contrast, U.S. government spending (federal and state) rose to 35.3% from 28.3% as a share of GDP in the same period.

Europe's VAT Lessons - WSJ.com

 

[Toro]

This congress?

it would be a slam dunk.

Queen Nan has been talking about it for 4 years.

I don't think they'd get enough Blue Dogs in Congress to pass it.

there are no blue dogs, they proved that with Barrycare.

I don't think it has a chance, but if I'm wrong and they do pass it before the elections, then I think your scenario of the Republicans winning the House is much more likely.

 

[Toro]

As a tax, a broad based consumption tax is very efficient because it does not discriminate between economic transactions nor skews the allocation of resources.

Many conservatives argue for a VAT over an income tax for this reason.

I know you think that sounds good - but it doesn't work that way in reality (and a lot of fiscal conservatives do not support VAT.)

...

Canada has a VAT. It is called the Goods and Services Tax, or the GST. It is applied uniformly on most items, excluding a few staples such as food, housing, etc. It is also transparent and not hidden into the price of goods and services.

In Canada, the government cut the GST and most economists opposed it, including conservative economists from one of Canada's most conservative think tanks, the Fraser Institute, as well as the CD Howe Institute, perhaps Canada's most respected think tank.

Some economists have come out against Conservative Leader Stephen Harper's election campaign promise to lower the GST.

"From an economic point of view, it wouldn't be my first choice," Bill Robson, senior vice-president of the CD Howe Institute, told CBC Newsworld on Thursday.

"If you want tax cuts that are going to promote work, going to promote saving, help us invest more and raise living standards in the future, the GST is not the tax you would go after."

Robson said it would be better to cut personal income taxes.

Earlier in the day, Harper announced he would lower the seven per cent goods and services tax by one percentage point immediately and by another point within five years if he becomes prime minister after the Jan. 23 vote.

Jason Clemens, an economist with the Fraser Institute, said he also opposes reducing the GST.

Jim Davies, who teaches economics at the University of Western Ontario in London, also said he would prefer income tax cuts.

"Most serious work done by economists who specialize in public finance indicates that the GST is a more efficient tax source than the income tax," Davies told the Canadian Press. "If the income tax cut is designed properly, it can provide similar benefit to lower-income taxpayers."

"Stupid, stupid, stupid, stupid," he said.

http://www.cbc.ca/story/canadavotes2006/national/2005/12/01/gst-reac051201.html#ixzz0lmxmBoAr

EDIT - more

http://www.darrenbarefoot.com/archives/2005/12/does-cutting-the-gst-make-sense.html

 

[Xenophon]

I don't think they'd get enough Blue Dogs in Congress to pass it.

there are no blue dogs, they proved that with Barrycare.

I don't think it has a chance, but if I'm wrong and they do pass it before the elections, then I think your scenario of the Republicans winning the House is much more likely.

That is a forgon conclusion.

VAT is the other half of Barrycare, they knew they could not pay for it without a huge tax, and that means VAT.

 

[Madeline]

A VAT is one of the most efficient taxes.

But I can't see it. I don't think it would get through Congress.

I'd rather see them cut spending.

Efficient?

It's a bureaucratic nightmare designed to provide full employment to hordes of government employees who decide which products deserve to be exempt from VAT and which will be punished with it.

If they really wanted to be efficient, they would cut spending.

As a tax, a broad based consumption tax is very efficient because it does not discriminate between economic transactions nor skews the allocation of resources.

Many conservatives argue for a VAT over an income tax for this reason.

A few years ago, I concluded that the magnitude of our looming fiscal problem was so enormous that higher taxes were inevitable--and that was long before the recent crisis made matters vastly worse. Moreover, I concluded that the magnitude of this tax increase is so great that it would seriously cripple the economy if accomplished through higher rates on an already dysfunctional income tax system. Reluctantly, I concluded that a value-added tax (VAT) is the best way to raise the revenue that would, in any case, be raised.

When I first made this suggestion in a Los Angeles Times article in 2004, I was building on a large body of tax analysis showing that the VAT is the best known way of raising revenue. When I say "best" I mean that it raises large revenues from low rates and has minimal disincentive effects. In economists' speak, it has a very small dead weight or welfare cost--the economic output lost by the tax over and above the revenue collected.

... Back in the early 1980s, practically every leading conservative economist supported a VAT for the United States. Norman Ture, one of the godfathers of supply-side economics, and Murray Weidenbaum, chairman of the Council of Economic Advisers under Ronald Reagan, wrote many articles, books and papers supporting the VAT. The conservative American Enterprise Institute published a book in 1987 saying that the VAT was the key to deficit reduction.

Perhaps the strongest evidence that the VAT was considered the conservative tax reform is that it is the foundation of the flat tax, which is still supported by practically every serious conservative tax reformer.

... [A flat tax] is not the only case of conservatives supporting a VAT when it suited them to do so. Back in 1992, former California Gov. Jerry Brown proposed a VAT plus a flat rate income tax and this was widely hailed by supply-side economists such as Arthur Laffer and Gary Robbins. More recently, Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.

Support The VAT - Forbes.com

A consumption tax is not a VAT, though both have their proponents. A consumption tax is levied on the taxpayer's (individual or corporate) consumption rather than his income and is generally viewed as an alternative to income taxation, not a new tax to be added to it.

Consumption taxes such things as life insurance proceeds and savings as they are used (spent) rather than wages and other income as they are earned. Some pundits feel that a consumption tax therefore encourages savings because interest earned but not spent is not taxed, and because any income in excess of consumption is viewed as saved and not taxable. It is widely viewed as desirable that any tax system encourages savings and investments.

Personally I don't think switching from one system to the other has enough advantage to warrant the tremendous upheval and record-keeping burden on taxpayers.

 

[WillowTree]

"open to the idea"

It was his intention all along, just as I said last year.

Are you Charles Krauthammer?

 

[Immanuel]

Efficient?

It's a bureaucratic nightmare designed to provide full employment to hordes of government employees who decide which products deserve to be exempt from VAT and which will be punished with it.

If they really wanted to be efficient, they would cut spending.

As a tax, a broad based consumption tax is very efficient because it does not discriminate between economic transactions nor skews the allocation of resources.

Many conservatives argue for a VAT over an income tax for this reason.

A few years ago, I concluded that the magnitude of our looming fiscal problem was so enormous that higher taxes were inevitable--and that was long before the recent crisis made matters vastly worse. Moreover, I concluded that the magnitude of this tax increase is so great that it would seriously cripple the economy if accomplished through higher rates on an already dysfunctional income tax system. Reluctantly, I concluded that a value-added tax (VAT) is the best way to raise the revenue that would, in any case, be raised.

When I first made this suggestion in a Los Angeles Times article in 2004, I was building on a large body of tax analysis showing that the VAT is the best known way of raising revenue. When I say "best" I mean that it raises large revenues from low rates and has minimal disincentive effects. In economists' speak, it has a very small dead weight or welfare cost--the economic output lost by the tax over and above the revenue collected.

... Back in the early 1980s, practically every leading conservative economist supported a VAT for the United States. Norman Ture, one of the godfathers of supply-side economics, and Murray Weidenbaum, chairman of the Council of Economic Advisers under Ronald Reagan, wrote many articles, books and papers supporting the VAT. The conservative American Enterprise Institute published a book in 1987 saying that the VAT was the key to deficit reduction.

Perhaps the strongest evidence that the VAT was considered the conservative tax reform is that it is the foundation of the flat tax, which is still supported by practically every serious conservative tax reformer.

... [A flat tax] is not the only case of conservatives supporting a VAT when it suited them to do so. Back in 1992, former California Gov. Jerry Brown proposed a VAT plus a flat rate income tax and this was widely hailed by supply-side economists such as Arthur Laffer and Gary Robbins. More recently, Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.

Support The VAT - Forbes.com

A consumption tax is not a VAT, though both have their proponents. A consumption tax is levied on the taxpayer's (individual or corporate) consumption rather than his income and is generally viewed as an alternative to income taxation, not a new tax to be added to it.

Consumption taxes such things as life insurance proceeds and savings as they are used (spent) rather than wages and other income as they are earned. Some pundits feel that a consumption tax therefore encourages savings because interest earned but not spent is not taxed, and because any income in excess of consumption is viewed as saved and not taxable. It is widely viewed as desirable that any tax system encourages savings and investments.

Personally I don't think switching from one system to the other has enough advantage top warrant the tremendous upheval and record-keeping burden on taxpayers,

Wait a minute. You think he wants to switch from one to the other?

That is not my understanding of the issue. My understanding is that his advisers are suggesting a VAT on top of the income tax not as a replacement for.

Immie

 

[Xenophon]

"open to the idea"

It was his intention all along, just as I said last year.

Are you Charles Krauthammer?

No, I'm against all that foriegn entagelments that Chuck likes.

 

[JenyEliza]

Don't see any Obamabots in here defending the moron this time......

Strange. maybe they are a little slow......

*chirp* *chirp* *chirp*

 

[Dont Taz Me Bro]

Not going to happen but why shouldn't everything be on the table?

Can you explain why you don't think it will happen?

I'd be interested in knowing your reasons.

Immie

The votes won't be there for it.

 

[Immanuel]

Not going to happen but why shouldn't everything be on the table?

Can you explain why you don't think it will happen?

I'd be interested in knowing your reasons.

Immie

The votes won't be there for it.

I heard that one before... and now we are compelled to buy health insurance by 2014 or face fines and penalties... maybe even jail time by then, if things don't go their way.

Immie

 

[Polk]

Didnt he claim he was against just hours ago?

Didn't he also make a campaign promise not to raise taxes on families earning less than $250,000/year?

Oh wait! His first act as President proved that was a lie when he raised cigarette taxes.

Immie

People have to buy cigarettes?

 

[Polk]

The reality is the long-term deficit is so huge, it's going to take a mix of tax increases and spending cuts to balance it. People claiming otherwise are just living in a fantasy land.

 

[Immanuel]

Didnt he claim he was against just hours ago?

Didn't he also make a campaign promise not to raise taxes on families earning less than $250,000/year?

Oh wait! His first act as President proved that was a lie when he raised cigarette taxes.

Immie

People have to buy cigarettes?

Doesn't matter whether they have to or not. He promised not to raise taxes on families making less than $250k and the first thing he did was raise their taxes.

Immie

 

[Immanuel]

The reality is the long-term deficit is so huge, it's going to take a mix of tax increases and spending cuts to balance it. People claiming otherwise are just living in a fantasy land.

Finally, something you and I can agree on. It has been a while.

Unfortunately, those in Washington are not listening.

Immie

 

[Polk]

there are no blue dogs, they proved that with Barrycare.

I don't think it has a chance, but if I'm wrong and they do pass it before the elections, then I think your scenario of the Republicans winning the House is much more likely.

That is a forgon conclusion.

VAT is the other half of Barrycare, they knew they could not pay for it without a huge tax, and that means VAT.

Except that the bill not only pays for itself, it pays for itself and then some.

 

[Polk]

Can you explain why you don't think it will happen?

I'd be interested in knowing your reasons.

Immie

The votes won't be there for it.

I heard that one before... and now we are compelled to buy health insurance by 2014 or face fines and penalties... maybe even jail time by then, if things don't go their way.

Immie

What leads you to believe you'll face jail time, even though the bill specifically states you won't?