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Beware, the Value-Added Tax

So what is the VAT anyway? Will it really resolve the deficit?

by
Patrick Richardson

Bio

May 4, 2010 - 12:00 am
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As the administration pushes a value-added tax, while in typical Barackonian fashion claiming they’re not pushing a VAT, I thought it might be prudent to examine exactly what a VAT is.

The VAT is essentially a sales tax, but of a very specific sort.

What happens is every time value is added to a product or service, there is a tax added.

In the case of bread, for example, there is a tax when the wheat is harvested, another when the wheat is sold, another when the wheat is ground into flour, another when the flour is baked, another when the bread is sold to the retailer, and finally one when the bread sold to you.

And this happens on every purchase, whether a good or service.

This value-added tax has been used in Europe for some time and is rather unpopular there. It also has the effect of depressing consumption, as a large tax tends to keep people from buying things.

Now, if this VAT — or a national sales tax, another idea of the administration to fund its spending binge — were to replace the current system of income taxes then amen brother, preach on. However, this is being touted as a way to raise additional income, not as a replacement for the current system which everyone but the Internal Revenue Service hates.

It is usually implemented in a stair-step fashion, and the details vary from country to country. For instance, in the Netherlands non-essential goods and services are taxed at 19 percent while essentials like food are taxed at 6 percent.

Keep in  mind that the top marginal tax rate in the Netherlands is just over 50 percent and there is talk of raising it to 60 percent. Sound familiar?

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