Today is
Cost of Government Day--the day that you stop working to pay
for the total cost of government (spending plus
regulation). To state the obvious, it's August. The
latest this day ever used to come was mid-July. In fact,
the day has advanced by nearly a month since last year, thanks to
TARP and stimulus (not to mention shrinking national income).
I spoke at the event wearing my hat as Executive Director of
AmericanShareholders.org,
a free market group which works on investor class issues. I
decided to highlight the international angle in the report.
There are two inter-related appendices in the report. One
is on the issue of worldwide taxation with deferral, and the
other is on a value-added tax (VAT). On deferral, it's
pretty clear where Obama, Rangel, et al want to go. They
would like to see all worldwide income of U.S. companies taxed
immediately by the IRS, and probably without a foreign tax
credit. Each of these would add a full day to the Cost of
Government.
As a "solution," many domestic manufacturers and other victims of
our needlessly punative and complex international tax system want
to swap out our corporate income tax for a VAT. The
thinking is that the border adjustability of a European-style VAT
would be beneficial to them, and would raise as much money as the
corporate tax at much lower rates.
Bad idea.
As Dan
Mitchell (back when he was at Heritage) pointed out, VATs in
Europe started small and got big. The average VAT rate has
climbed from 5 percent in 1970 to 20 percent today. In
fact, there is a 15 percent minimum VAT rate
needed to join the EU. His research also shows that as the
VAT rate rose, other taxes rose at the same time. So, VATs
simply fed the bottomless gullet of government. VATs are
opaque, since they are part of the price of a good, not on top of
them like a US-style sales tax.
Others look to a VAT as the "least bad" way to fill in the
unfunded liabilities of Social Security and Medicare. As
the report demonstrates, this would require a VAT rate of 12.75%
at the end of the 75-year actuary predictions. This is on
top of the 15.3% FICA rate we already have. Again, a bad
idea.
What about healthcare reform? Suppose we wanted to break
the logjam that House Democrats find themselves in (surtax vs.
taxing health benefits) with a new VAT? Assuming a
European-style VAT, you would be able to fund a $300 billion per
year health plan (a high estimate, but a fair one, of H.R. 3200)
with a VAT rate of between 5-6 percent. That would be like
doubling the sales tax in every state in America, but hiding it
inside the price of the good.
topics:
Taxes, Government Spending
