The VAT Man Cometh: It Will Happen. How Bad Is It?
A VAT is coming. This prediction is wrapped in as much certainty as possible.
Not before the 2010 elections. No Democrat standing for reelection whose seat is within 20 points will utter word one about a VAT. Their situation is already too desperate to suggest increased taxes.
It's even money whether we'll see active congressional committee work before Mr. Obama begins his reelection campaign: look for that in theaters near you, opening on January 2, 2011.
It's a sure bet that the VAT comes by 2014, which is one year after Obama's second term, or during the first year of whoever his opponent is. The more likely it looks like Obama keeps his seat, the sooner we'll have the VAT.
A VAT doesn't add anything: it removes value. There is no way a tax levied on a product or service can directly increase the value of that product or service.
Costs Rise, Profits Fall
Those who provide services will have to charge their clients a VAT. This acts exactly as a sales tax. Contractors must either lower their rates so that their clients pay the same as they do now, or they will lose business because their clients themselves will have less money to spend.
Most people and businesses will have less money for themselves. Remember: a tax removes money.
The Stages of VAT
The VAT is applied to "each stage" in an item's or service's development. But the definition of a process which creates something can be lengthened arbitrarily.
For example, widgets are made by (A) buying the raw materials, and (B) assembling them.
Rapacious politicians can easily regulate this process, defining each activity to legally be three, or seven, or eighty-two steps. You don't just "buy" raw materials, you buy material X, then you buy material Y, and so forth.
After letting your imagination play with "assembly," you'll see how easily lawmakers can go berserk.
Swings Both Ways
VAT will woo both Democrats and Republicans, though it is the former that will respond with ardor. A substantial proportion of Republicans will vote for a VAT; all Democrats, except those owed a favor, will say aye.