• Tag Archives VAT
  • Value-Added Taxes Make It Easier to Raise Taxes—That’s Why Governments Love Them

    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.

    Simply stated, I don’t want that to happen in America.

    Now I have new evidence to support that position.

    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.

    But that doesn’t make it a good idea. Japan has been experimenting with bigger government for the past 25-plus years and it hasn’t led to good results. The VAT was just 3 percent in 1997 and the Prime Minister now wants it to be three times higher.

    All of which is sad since Japan used to be one of the world’s most market-oriented nations.

    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.

    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.

    Which is what I’ve been pointing out!

    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

    Source: Value-Added Taxes Make It Easier to Raise Taxes—That’s Why Governments Love Them – Foundation for Economic Education



  • Republicans Are Already Trying to Raise Taxes

    Republicans Are Already Trying to Raise Taxes

    Republicans in the House of Representatives are inadvertently setting a nasty political and economic trap for Donald Trump. Yes, it’s the Republicans, not the Democrats, who are ready to administer an unnecessary black eye to the new President. That’s not their intention, but it manifestly will be the result.

    The vehicle for this unwitting GOP punch is a new exaction called the border adjustability tax. This levy will cost American consumers at least a trillion dollars over the next ten years. Knowing how Washington politicians calculate these things, you can bet the amount will end up being considerably more. Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.

    Few people are even aware of what the Republicans are getting ready to hit them with. There has been virtually no debate or public discussion about this new, horrible tax, yet in one of those strange fits of collective, self-destructive behavior, numerous GOP lawmakers are ready to enact it.

    Here’s how, in essence, this sneaky, anti-consumer tax works. Importers will no longer be allowed to deduct an item as a business expense. To simplify things, let’s say a store imports a pair of sneakers for $40 and then sells them for $50, making a $10 profit on which it would owe taxes. Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50! And who, ultimately, pays this tax? You, the consumer, in the form of higher prices or fewer choices of where you can shop. Retailers and their customers will be hit.

    Many oil refiners import crude oil to turn into gasoline. This new tax will sharply raise their costs, which will spell pain when you fill up your tank. Worse, some could be forced out of business or have to sharply curtail operations, as drivers cut back on buying the suddenly more expensive fuel.

    Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.

    The Loophole of All Loopholes

    But wait, it gets worse. Another feature of this bizarre GOP scheme gives exporters a gargantuan tax break by, in effect, not taxing their export revenues. Let’s say a corporation sells a piece of machinery to Iran for $5 million, which cost only $4 million to produce. That means $1 million in taxable profit. Under the new Republican scheme, however, that $5 million received from the mullahs wouldn’t be taxable. Instead of a $1 million profit, the corporation, for tax purposes, would have a $4 million loss. Loophole doesn’t begin to describe this “tax break.”

    No wonder companies like Boeing, GE and other big exporters are orgasming over this GOP “reform.”

    Big breaks for big companies, higher prices for beleaguered consumers. Why are the Republicans doing this? They say the revenue raised will help finance a huge tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy.

    But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world. Democrats will someday be back in power, and they won’t hesitate to either ramp up this GOP-created tax or go for the VAT. This would be hypocritical–rip apart the Republicans over this tax, and then go on to compound their felony. A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.

    Consider this astonishing fact: In the mid-1960s government spending in Europe as a proportion of their economies wasn’t much different from our own. Growth rates matched or exceeded ours. Then Europe discovered the VAT. Spending ballooned and growth slowed to a crawl, consistently clocking in at significantly lower levels than Uncle Sam’s.

    Republicans also claim their new tax would help exports. In the real world it would do no such thing, as astute tax expert Dan Mitchell has explained (see this and this).

    The GOP should drop this tax scheme. Why create unnecessary conflict and damage our new President? Republicans shouldn’t be constrained by the Congressional Budget Office’s antiquated way of measuring the economic impact of changes in taxes. Drop the green eye shades, and go for big cuts that would turbo-charge the economy.

    Republished from Forbes.


    Steve Forbes

    Steve Forbes is an American publishing executive, who was twice a candidate for the nomination of the Republican Party for President. Forbes is the Editor-in-Chief of Forbes, a business magazine. Forbes was a Republican candidate in the 1996 and 2000 Presidential primaries. Forbes is the son of longtime Forbes publisher Malcolm Forbes, and the grandson of that publication’s founder, B.C. Forbes.

    This article was originally published on FEE.org. Read the original article.