Value Added Tax (VAT) – NOT what you might think!


You may have heard about the proposal being bandied about DC this past week about adding the VAT to our current tax mixture.  You might have heard also that this is a “corporate tax” only, and that the consumer will not see the effects.  You need to know now that this is absolute hogwash.  First of all, any idiot with a modicum of business sense or economic savvy has to know that ANY company, corporation or business is in business to MAKE MONEY.  That is not evil.  That is the barter system.  They have a service or product you want; you have money they want.  You give them the money, they give you the product.  It works out beautifully (especially if the government stays out of it) for all parties concerned.  The issue here with regards to the Value Added Tax, is that any costs incurred by said business, corporation or industry will automatically add that cost on to the total cost of goods sold (in accounting terms, this is the COGS).  Businesses do NOT eat any costs.  They pass them right on to the end user – YOU, the consumer.  So; if you hear that the consumer will not even see this tax; know with a certainty that you are being fed a load.

Now, a simple explanation of the VAT is this.  Imagine a car.  There are hundreds of parts that go into a car.  Each time one item is attached to another item; thus increasing the value of the new item; a tax is added.  Imagine how many times one piece is added to another piece to make a whole new, more expensive piece in the construction of one automobile.  And each time, a new tax is added.  Upon completion of the car, the cost for all those pieces; plus the labor; plus all overhead for the operation of that business that builds that car PLUS all the taxes that have been added in during the construction is all worked into the final price that we as consumers pay.  It is kind of mind blowing. 

According to one article I read in the Wall Street Journal online:  VATs Mean Big Government, by Daniel J. Mitchell:

VATs are associated with both higher overall tax burdens and more government spending. In 1965, before the VAT swept across Europe, the average tax burden for advanced European economies (the EU-15) was 27.7% of economic output, roughly comparable to the U.S., where taxes were 24.7% of GDP, according to data from the Organization for Economic Cooperation and Development OECD). European nations began to impose VATs in the late 1960s, and now the European Union requires all members to have a VAT of at least 15%.

Results? By 2006, the OECD reports that the average tax burden for EU-15 nations had climbed to 39.8% of GDP. The tax burden also has increased in the U.S., but at a much slower rate, rising to 28% for that year.

And these statistics are where the VAT is the ONLY tax.  Our illustrious congress is proposing the VAT in ADDITION to the multitude of taxes we already pay.  This will be a vicious nightmare for us as individual consumers, and will be another several nails in the coffin of the U. S. economy. 

To read the full article go here:  http://online.wsj.com/article/SB124407379245683253.html

This is just more fodder for the support of the Fair Tax and the repeal of the 16th Amendment.  Please read further to learn about the Fair Tax.  It is a brilliant concept that would have amazing economic consequences, including each person bringing home an ENTIRE pay check each payday; corporations moving to the US (or in many cases BACK to the US), because they would no longer be forced to spend so much money paying taxes, and on the lawyers necessary to make sure that they do pay all those taxes.  There are so many advantages to the Fair Tax, and I honestly cannot think of even one disadvantage.  Go here to read more:  http://www.fairtax.org/site/PageServer?pagename=about_main

The main point here though is:  You MUST bombard your senators and congress people about the VAT.  It must not be allowed to pass.  If it does, it will not be very long before we have no products available that will be cheap enough to buy, and nothing left of our pay checks to buy it with.

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4 Responses

  1. […] Value Added Tax (VAT) – NOT what you might think … […]

    • VAT are an accounting nightmare for businesses. Your auto manufacturer example will pay the VAT rate on all the component parts that they buy, then will have to file for VAT credits on those same parts when they are assembled into the final vehicle. The automaker then charges the consumer the full VAT on the assembled value of the vehicle.

      Each manufacturer has to add lots of tax accounting staff to keep up with the tax – adding to the overhead cost of the product in addition to the VAT %.

      This is sheer idiocy as a tax choice. We need to repeal all Federal taxes, the 16th amendment & adopt the Fair Tax on as broad a transaction basis as possible to keep the rate to a minimum. That will be true PAYGO for the feds – they can only spend what they take in.

  2. Since all these various VATs eventually get added up to the final retail price, why not JUST tax the item at the retail purchase. That’s what HR25, John Linder’s FairTax plan wants to do. Can’t be more simple than that.

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