My Kids Will Pay a 15% VAT If Democrats Aren't Thown Out

Via the New York Post:

The VAT is a type of national sales tax, levied on the value-added at each stage of production. Consider a piece of furniture: The VAT would be imposed when the raw timber is sold, when the sawmill produces lumber, when the manufacturer builds a chair, a tax at the wholesaler level and then when a retailer sells the chair to a consumer.

To avoid double taxation, each seller along the way gets a credit for taxes paid at earlier stages of the production process. So the final tax to the consumer, at least in theory, is the same as a retail sales tax of the same amount.

The VAT has its virtues: As a single-rate, consumption-based system, much like the flat tax or national sales tax, it would introduce far fewer economic distortions than today's income tax -- and a heckuva lot less paperwork.

That would be a persuasive argument -- if proponents wanted a VAT to replace the Internal Revenue code. But that's not what's intended by Volcker -- or Senate Budget Committee Chairman Kent Conrad and House Speaker Nancy Pelosi, who've also been chatting up the VAT. The politicians want a VAT, and they want to keep the income tax. (To be more accurate, they want a VAT and to raise other taxes as well.)

They want the cash, of course, so they can continue buying votes by spending other people's money.

The VAT is "on the table," according to Democrat Speaker of the House of Representatives Nancy Pelosi (source here). One of Democrat President Barack Obama's top economic advisers suggested that it's time for America to adopt a VAT. And President Obama's new debt commission, which will meet for the first time just before the elections and after Obama has added trillions in debt, was rumored to be looking strongly at suggesting that the US adopt the VAT. And although the Senate just voted Thursday to say they don't want to create a new value-added tax, 12 of the 13 senators who voted to support the possibility of a VAT were Democrats. Democrats are working today on how they can make my children pay a VAT.

The state of Michigan once used a form of VAT known as the "Single Business Tax" (SBT) as its form of general business taxation. It was the only state to have used a VAT, and it sucked. Voters voted to replace the SBT with the new MBT, which was expected to be more fair and less of a jobs and economy killer than the SBT ended up being.

One other note on the VAT. While most Democrats and liberals want a 'small' VAT, most tax rates start small and then end up going up and up and up (except when you vote Republican, then they go down). When the income tax was first put in, the highest marginal income tax rate in 1913 was only 7%, but only 5 years later the highest rate to 77%, and by the 1940's, the top rates in the US were above 90%. Expect the VAT to follow a similar trajectory- if passed by Democrats it will start small, but eventually will be a massive jobs and economic killer.