Liberals Can't Cut Spending and the VAT?

When I lived in Europe everything was very expensive, even when the exchange rate was good.  Recently I looked into buying a watch and learned I could save 20% off of the price because I would not have to pay the Value Added Tax, or VAT.  Already we have income tax, state tax, and city tax.  Now, because the IRS is not getting as much money from taxpayers Democrats are considering bringing an idea from Europe here: the VAT:

Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.”

Democrats are seeking to soak everybody equally.  Of course, the VAT will hurt the poor much more than the rich.  Think about it, does 20% of $1 million bite more or 20% of $25,000.00?  What happens when taxes are increased and wages do not grow?  People spend less.

Germany’s chancellor, Angela Merkel, understands this much and also admits to it:  “Every discussion about VAT damages economic activity.”

Let’s look back for a moment to the past, specifically the 19th Century.  Way back then there was a man named Frederic Bastiat who did a lot of thinking and writing on economic matters.  In his most widely known work, That Which is Seen & That Which is Not Seen he wrote of a hypothetical shopkeeper who had his window broken.  To the layman this was not a bad thing because the glass company would sell a piece of their inventory and one of their employees would be paid to install a new window, stimulating the economy.  Bastiat remarked that for the glass company and the glazier, this is That Which is Seen but for the shopkeeper, who had to spend, say, $100.00 on a new window, he would be unable to hire a new employee, buy advertising for his store, purchase new products, or buy new equipment.  For Bastiat, this is That Which is Not Seen.

This money will go to fund who-knows-what programs which, we all know, will never be cut or eliminated.  The VAT will remain, the government will grow even larger, and people will have to work even harder and longer to buy what they need or want.

As every consumer knows, if your bills exceed your income and you don’t or can’t use credit cards to make up the difference, you cut your spending.  Why is it so difficult for the government to do this and why is it so hard for voters to elect officials who will cut spending?

According to Investor’s Business Daily:

Over the last 40 years, federal spending as a share of GDP has averaged about 20%. The current Democratic leadership will push that to at least 22% of GDP — and likely much higher. That will mark a permanent expansion in the size of federal government with a concomitant shrinking of your wallet. Taxes are already budgeted to rise by $1.1 trillion by 2019. But they want more.

The problem is, all this tax hiking while still in a recession will tank the economy and make any eventual recovery a weak one.

This isn’t a matter of conjecture. As we’ve noted before, President Obama’s chief economic adviser, Christina Romer, even authored one of the biggest long-term studies on tax hikes’ economic effects. It found that, going back to 1947, a 1% rise in taxes results in roughly a 2% to 3% drop in GDP growth.

Europe is a nice place overall but social and economic mobility is tough there, that’s why so many people move to America.  Adding yet another layer of taxation and government to our lives will only grow the Beast more and make our lives worse.  Just look at California where sales tax went up by at least 1% and the DMV fees doubled.  Think that makes it easy to buy or sell a car or anything else?  And the state is still in a financial mess.