Thursday, May 28, 2009


From the Washington Post, May 27, 2009:

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look
Levy Viewed as Way to Reduce Deficits, Fund Health Reform

By Lori Montgomery
Washington Post Staff Writer
Wednesday, May 27, 2009

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families....

First off, as a European I'd like to point out that I was actually very much surprised the US did not have a VAT. Knowing that now, I am more than ever convinced the country does not need one. I have no intention to sound like a smartass, so I'll keep it simple. If what is as yet still the strongest and most successful economy on earth managed to keep functioning quite well, at least until recently, and become the, well, strongest and most successful economy on earth, and if it has been able to offer the overwhelming majority of its 300 million citizens a good and safe life, especially those willing to help themselves, then the United States should not introduce a VAT.

Over here we call it "direct taxes". Belgium has basically two tariffs, 21% and 6%. 21% is the most common one, 6% rather the exception. You buy books, certain medication, art objects, certain agricultural products, you pay an extra 6% over the basic value. Everything else, DOINK, 21% extra. So you want to buy a middle class car worth, say, 20,000 EUR, then you have to pay an extra 4,200EUR to the State. Of course you do not pay it directly to the state, the guy who sells you the car does.

Same goes for that new house you build. Normal value 250,000 EUR, you gotta cough up an extra 52,500 EUR to the State so that imams can be paid as well as a legion of fonctionnaires.

But whether you call it a direct tax or not, it is what it is: a TAX. It amounts to a tax hike. In my case, as a Beljun, a serious one. Of course, over here us net contributors have all developed somewhat like those weird and scary creatures you reportedly find on the bottom of the Mariana Trench, who survive despite having 11 kloms of water over them. They have adapted. So, it's not that we don't feel it anymore, but we live with it.

The thing is, if a mighty state like the US has until now apparently not had problems to build e.g. its gigantic road infrastructure, the mightiest army on the planet, and gazillions of skyscrapers, while all the while offering its citizens sound health care and a very high living standard.... then the US's government should not look for more income, at least not by using taxes. Because IN DOING SO, it may experience something called the Laffer Effect, which, believe it or not, might actually also be called the Ibn Khaldun Effect, after the muslim scientist who observed it first in the late thirteen hundreds (when there's something good to tell about the wifebeaters and headchoppers we say it also, unfortunately we have to hark back a couple of centuries):

At this point, I maybe ought to conclude by saying that someone should tell that guy who somehow made it POTUS - except I'm not holding out high hopes he'd understand it.


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