What's Up With VAT?
Well it is official. The world has gone mad. Paul Volcker floated a trial balloon Tuesday for a VAT (Value Added Tax). Apparently someone in government went online to check the account balance and found out we are broke. If this surprises you I ask now that you take your voter registration card and put it in the circular file. Now please sit back relax and prepare to be educated.It shouldn't be a surprise to any of you that our economy is in shambles right now. Unemployment is just below ten percent and right now if we added two hundred and fifty thousand jobs a month for the next two years we would be right around eight percent. That is still high. We all understand that a lot of government revenue is generated by income tax. That means when lots of people aren't working that is income tax we are not collecting. To compound that problem, not only is it revenue that isn't generated, many of these unemployed are getting unemployment benefits or welfare which costs us money. Simple concept. Instead of making money off these people we are spending money on them. This is a key part to increasing government revenue and getting our economy back on track.
Now I want you to picture the job market as a cup of water. When the housing market crashed and the economy started sliding it was like you poked a hole in the side of that cup. Jobs drained out but could only drain to the level that you poked the hole. As the jobs pour out there is less downward force so the rate that jobs drain slows until it reaches the level of the hole. That is what has happened over the past year. The analogy breaks down here. We had a month of positive job growth but I would hesitate to get excited just yet. Unemployment is actually higher than the 9.7% we see because it only measures people actively looking for jobs. During the recession many have stopped looking but with some positive signs they are likely to begin looking again. That is where we stand right now in the United States.
Without the VAT tax we have some significant problems to overcome to encourage job growth. Some of the Bush tax cuts are expiring. When a tax cut expires it is for all intents and purposes a tax increase. We just passed a massive new entitlement that starts getting paid for immediately. A tax increase. Looking to the future we must also recognize that no entitlement cost has ever been accurately predicted and no entitlement has ever cost less than people thought. Businesses know that, since businesses look long term they have to try and calculate for the tax increases that are planned and leave some wiggle room for the cost that just wasn't factored in. These two effects are basically a double tax. Basic economics tells you that tax increases inhibit growth. When employers have less money to expand that is less money to create jobs. Less jobs means less income tax and more people needing government aid. This is all very bleak and an argument can certainly be made that this could be a double dip recession. Right now we are at the bottom of the barrel having lost as many jobs as possible and before we even start creating jobs businesses are going to be hit with taxes. That is bad.
Now you calculate in for the VAT. On top of two other massive tax increases the VAT is essentially a hidden consumption tax. Businesses will pay the VAT on the raw materials then you will pay another VAT on the actual product. This makes everything more expensive for everyone. When businesses costs go up that is less money for jobs so unemployment looks bad again. The everyday items you buy go up which is bad for your budget. The compound affect of these three taxes could easily cause unemployment to rise again hurting government revenue on income taxes (albeit while taking extra revenue from the VAT), and forcing more people back on the government dole. European countries with a VAT regularly have 10% unemployment and higher.
The thing I want you to take away from this is that in this economic climate the VAT will in no possible way help the economy to rebound. If the government is broke and chooses to make its people broke to pay for itself, then how will it make the next paycheck. Now the government and the people are more broke than they were. This idea of raising taxes to pay for rampant spending is disgusting. The government is using the American people like an ATM and we have to cut back while government keeps spending as usual. This is particularly disconcerting with the brand new health care entitlement. It is like buying a brand new Cadillac and then borrowing rent money from your friend who drives a Daewoo.
Tyson Bam
