The value-added tax was first imposed in Europe starting about 50 years ago. Politicians in nations like France approve of this tax because it is generally hidden, so it is relatively easy to periodically raise the rate.
And that’s the reason I am vociferously opposed to the VAT. I don’t think it’s a coincidence that the burden of government spending dramatically increased in Europe once politicians got their hands on a new source of revenue.
We’ll start by crossing the Pacific to see what’s happening in Japan, as reported by Reuters.
Japanese Prime Minister Shinzo Abe vowed to proceed with next year’s scheduled sales tax hike “by all means”… Abe said his ruling Liberal Democratic Party (LDP) won last year’s lower house election with a pledge to use proceeds from the sales tax increase to make Japan’s social welfare system more sustainable. …his plan to raise the tax to 10 percent from 8 percent in October next year. Abe twice postponed the tax hike after an increase to 8 percent from 5 percent in 2014 tipped Japan into recession.
I give Prime Minister Abe credit for honesty. He openly admits that he wants more revenue to finance even bigger government.
All of which is sad since Japan used to be one of the world’s most market-oriented nations.
Why Does the OECD Want a Higher VAT?
You also won’t be surprised to learn that the OECD is being a cheerleader for a higher VAT in Japan.
Speaking of which, let’s look at what a new OECD report says about value-added taxes.
VAT revenues have reached historically high levels in most countries… Between 2008 and 2015, the OECD average standard VAT rate increased by 1.5 percentage points, from 17.6% to a record level of 19.2%, accelerating a longer term rise in standard VAT rates… VAT rates were raised at least once in 23 countries between 2008 and 2018, and 12 countries now have a standard rate of at least 22%, against only six in 2008… Raising standard VAT rates was a common strategy for countries…as increasing VAT rates provides immediate revenue.
And here’s a chart from the study that tells you everything you need to know about how politicians behave once they have a new source of tax revenue.
Incidentally, there’s another part of the report that should be highlighted.
For all intents and purposes, the OECD admits that higher taxes are bad for growth and that class-warfare taxes are the most damaging method of taxation.
…increasing VAT rates…has generally been found to be less detrimental to economic growth than raising direct taxes.
Taxes Undermine Prosperity
What makes this excerpt amusing (at least to me) is that the bureaucrats obviously want readers to conclude that higher VAT burdens are okay. But by writing “less detrimental to growth,” they are admitting that all tax increases undermine prosperity and that “raising direct taxes” (i.e., levies that target the rich such as personal income tax) is the worst way to generate revenue.
Last but not least, I’ll recycle my video explaining why a VAT would be very bad news for the United States.
Everything that has happened since that video was released in 2009 underscores why it would be incredibly misguided to give Washington a big new source of tax revenue. And that’s true even if the people pushing a VAT have their hearts in the right place.
The only exception to my anti-VAT rigidity is if the 16th Amendment is repealed, and then replaced by something that unambiguously ensures that the income tax is permanently abolished. A nice goal, but I’m not holding my breath.
P.S. One of America’s most statist presidents, Richard Nixon, wanted a VAT. That’s a good reason for the rest of us to be opposed
Ordinary Americans have a low opinion of Washington, but they’re underestimating the extent of the problem.
The nation’s capital is basically a playpen for special interests. It’s now the richest region of the country, with lobbyists, bureaucrats, contractors, politicians, and other insiders and cronies getting fat and happy thanks to money that is taken from people in the productive sector of the economy.
Let’s take an up-close look at how this sordid game is played.
Here are some excerpts from a column by Catherine Rampell in today’s Washington Post.
The GOP is no longer the Party of Reagan. It’s the Party of Michael Cohen. …the Cohen blueprint for achieving the American Dream: Work minimally, if you can, and leverage government connections whenever possible. …following Donald Trump’s unexpected presidential victory, Cohen cashed in. …Cohen told companies that he could provide valuable “insights” into the new administration. Huge multinational corporations lined up to purchase these “insights,” dumping millions into Essential Consultants LLC… Cohen is hardly the only prominent Trumpster invoking White House connections… Cabinet members and other senior government officials, too, have enjoyed a sweetheart apartment deal, lobbyist-arranged vacations and private jet rides. These are not amenities secured through brains, honesty and hard work, the virtues that Republicans traditionally say are required for upward mobility and financial comfort. They are the fruits of luck, cronyism and a loose approach to ethical lines.”
This is disgusting. Republicans often come to Washington claiming they’re going to “drain the swamp.” Many of them, however, quickly decide it’s a hot tub.
But don’t forget that sleaze is a bipartisan activity in Washington.
Here are excerpts from a Wall Street Journalreport about influence-peddling on the other side of the aisle.
Tony Podesta was in line to be king of K Street. His lobbying firm ended 2015 as the third largest in Washington, D.C., with nearly $30 million in revenue from more than 100 clients, spanning Alphabet Inc.’s Google to Wells Fargo & Co. With his longtime friend Hillary Clinton expected to win the White House, 2016 promised to be even better. Mr. Podesta…hosted lawmakers and power brokers at his flat in Venice during the Art Biennale. It was one of many homes around the globe, including the Washington mansion where he displayed a collection of museum-grade artwork. In early 2016, he was ready to buy a $7.4 million condo overlooking Madison Square Park in New York City. …At age 59, he married Heather Miller, a congressional staffer 26 years younger. …Mrs. Podesta started her own lobbying firm, Heather Podesta + Partners, and they emerged a Washington power couple. …Mr. Podesta drew an annual salary of more than $2 million and made millions more in commissions and bonuses. …The Podesta Group grew from the 20th largest lobbying firm to third in three years, in terms of domestic and foreign lobbying revenues, propelled by business during President Barack Obama’s first term.”
But this story of graft and corruption has a happy ending.
Then he fell, a calamitous collapse… The Podesta Group lost its banker over news the firm did work for the U.S. subsidiary of a Russian bank under sanctions. …Mrs. Clinton’s…victory would go a long way to fixing many of his problems. She lost…and Mr. Podesta, like many who had banked on her victory, did too. Clients who had hired him for access to a new Clinton administration fell away. By the end of the year, the departures cost the firm more than $10 million in annual business… the Podesta Group did public relations work in 2015 for Raffaello Follieri, an Italian businessman who had pleaded guilty to swindling millions of dollars from an investment fund run partly by Mr. Clinton, one of Mr. Podesta’s early patrons. …Before closing the firm’s doors, Mr. Podesta gave himself an advance on his lobbying commissions.”
The common theme, as explained by Karen Tumulty for the Washington Post, is that D.C. is an utterly corrupt place.
…the game in Washington never really changes. The only things that shift from election to election are the most sought-after players. …When Trump won, the traditional rosters of lobbyists—ex-congressmen, lawyers from white-shoe firms, former congressional staffers—were of little use in figuring out and gaining access to a band of outsiders who came to town vowing to demolish the old order. Cohen was not the only Trump insider to see a chance to cash in… The president’s former campaign manager, Corey Lewandowski, along with former Trump aide Barry Bennett, also opened a consulting firm, which quickly had more business than it could handle. “It was like shooting fish in the barrel,” Bennett told The Post. …Nor is Team Trump unique in seizing these opportunities. President Barack Obama had not been in office a month before his 2008 campaign manager, David Plouffe, was paid $50,000 to give a speech in Azerbaijan to a group with close ties to that repressive government. …Washington continues to have a most durable ecosystem: The swamp is never drained; it just gets taken over by different reptiles.”
If a company hires a lobbyist or gives cash to a politician because it wants handouts or government intervention that will produce unearned profit, that’s wrong. Sort of like being a co-conspirator to a crime.
However, if a company hires a lobbyist and donates money because it is fighting tax hikes or new regulatory burdens, that’s noble and just. Sort of like engaging in an act of self-defense.
But wouldn’t it be wonderful if there wasn’t a need for either the bad type of lobbying or the good type of lobbying?
Richard Ebeling, a professor at the Citadel, offers a very good solution in a column for the Foundation for Economic Education. He starts by explaining that government and corruption have always been connected.
The corruption of government officials seems to be as old as recorded history. …the ancient Roman senate passed laws against such political corruption in the first century, B.C. …Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. …Today, high levels of political corruption remain one of the major problems people confront around the world. …Political corruption, clearly, is found everywhere around the world… Why?”
Richard answers his own question, pointing out that big government is a major enabler of corruption.
Part of the answer certainly…can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, …government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell”… The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs. …On the other hand, the…interventionist state…taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. …Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain… The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.”
So what’s the bottom line?
Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically.”
Amen. That’s the message I also shared in this video from the Center for Freedom and Prosperity.
Sadly, Donald Trump’s promises to “drain the swamp” don’t seem to have been very sincere. Earlier this year, he meekly acquiesced to a budget deal that produced a feeding frenzy among the swamp creatures.
How is that any different from what would have happened if Hillary Clinton was in the White House? Big government doesn’t magically become less harmful and corrupt just because Republicans are in charge.
Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.
This article was originally published on FEE.org. Read the original article.
