Wisdom from The Action Wisdom In Action

This Just In: VAT Trap--The Inevitable Deficit Fix

From CNN/Fortune.

In case you were wondering, this is also known as the Fair Tax plan.

"...the sheer scale of the expected numbers makes it practically inevitable that the U.S. will soon adopt a big VAT. It's the only vehicle capable of raising the money to cover the gigantic projected increases in spending and deficits."

...

"...it's never gotten much support in the U.S. for two reasons. First, it's a regressive tax: Low-earning families pay a bigger portion of their incomes than the wealthy. And second, the VAT -- first introduced by a French civil servant in 1954 -- has fueled the rapid growth of government in France, Germany, and even Japan. In fact, no other country spends the kind of money we're planning to spend without a VAT. The numbers tell the story."

...

"Here's the big problem: Government spending is projected at $5.7 trillion in 2020. Total tax receipts are expected to come in at $4.7 trillion, which creates the $1 trillion shortfall. But income tax receipts, by far the government's biggest source of revenue, are projected to reach just $2.3 trillion. Hence, erasing the deficit would require a 44% increase in income tax revenues to cover that $1 trillion deficit.

But even if tax rates rose 44%, tax receipts wouldn't increase nearly as much, since Americans would flee for tax shelters or retire early. "You can't get to rates high enough to increase receipts by almost half," says Riedl.

So how big would the new VAT need to be? The short answer is very. Raising the $1 trillion needed to cover the projected shortfall in 2020 would require a 7% tax on everything we consume."

Also, there is nothing to keep Congress or the states from raising it higher from there. Hello, Socialist country!

"There are two options besides the VAT, though they're fading fast.

The first is achieving extremely high growth rates. That could hold future deficits far lower than those projected today. The rub is that big government spending tends to depress rather than boost economic expansion. The other option is to substantially lower spending. But as we've clearly seen, that option is conspicuously absent from President Obama's new budget."

Like I said--hello, Socialist nation!

Posted by Cute at 9:48 PM

Labels: financial (non-tax), politics, social issues, taxes