David Hogberg reports that House Democrats are considering a value added tax (VAT) of perhaps 1.5 percent to pay for health care legislation, and his report is now being confirmed by the Associated Press. Few things would be more destructive during a time when the economy is shrinking and shedding hundreds of thousands of jobs each month than to create a national sales tax.
But as Hogberg notes, a VAT is more pernicious:
Unlike a sales tax that applies only to the point of purchase, a VAT taxes the value added at each stage of production. Thus, if the VAT rate is 5% and a producer of raw materials, a manufacturer and a retailer each add $1.00 of value to a product, then each owes the government five cents.
Not only would a VAT be disasterous economic policy, but it’s a regressive form of taxation since lower-income workers tend to spend a higher proportion of their income. Politically, it would represent a gross violation of President Obama’s pledge not to raise taxes on 95 percent of Americans — this would be a tax hike on every American. And even if it starts at just 1.5 percent, it opens the door for further hikes down the road as the federal government’s finances grow more unsustainable. I hope Democrats do formally propose it though, because there would be no better way to demonstrate to Americans that they are actively seeking to turn our nation into a European socialist state.
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