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by Nathan S. –
“The fact is, I’m all here: head, hands, legs, and all the rest of it, but it happens I’m invisible. It’s a confounded nuisance, but I am.” – The Invisible Man by H.G. Wells
Last week President Obama was asked by CNBC correspondent, John Harwood, about the value-added tax (VAT). Here was his response:
“I know that there’s been a lot of talk around town lately about the value-added tax – that is something that has worked for some countries. It’s something that would be novel for the United States. And before, you know, I started saying, ‘This makes sense or that makes sense,’ I want to get a better picture of what our options are.”
This came after White House economic advisor, Paul Volcker, said the U.S. should consider a VAT. But what exactly is it?
The VAT is a tax to the government on the consumption of goods and services; meaning whatever we buy – a bottle of wine, Blu-ray discs, toys for our children, etc. will have a value-added tax embedded in its price. It works by creating charges at each stage of production.
For instance: I’m making a bookshelf. I buy $30 worth of raw materials and the supplier must now charge me an extra $6 (20%) in VAT to the government. I pay the $36 and make my bookshelf. I now want to sell the bookshelf at $75. I must also add 20% ($15) in VAT which raises the price to $90. I can claim the original $6 in VAT (because the government gets it from the supplier; leaving me with a net VAT of $9 to pay them) but, for the unaware consumer, they’re still paying $15 in invisible taxes on what would have otherwise been a $75 purchase.
Political strategist, Dick Morris, explains:
“When you buy something for $10 and the clerk asks for ‘$10.65, please’, you know that you are paying a 6.5% sales tax. But when $4 of hidden VAT taxes cause the item to cost $14, you pay the $14 without knowing that it includes the extra tax.”
Obama thinks a VAT is a novel idea, even though he ran for president on this specific promise:
“Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
We now know he blew that promise when he signed a federal tax increase on cigarettes, raising the tax from 39 cents to $1.01 a pack – specifically hitting low-income families (who, according to the CDC, comprise more than half of all smokers). So is it a stretch to surmise another campaign promise broken with an invisible VAT?
© 2010, Nathan S.. All rights reserved.
