To VAT or not to VAT: For that we ask an authority on the topic
April 20, 2010 - 6:33 am
So, a value-added tax is being floated as a way to pay for this administration’s bloated spending.
Paul Volker, an Obama economic adviser and ex-chair of the Federal Reserve, has said VAT should be on the table. The White House tried to shoot down this trial balloon, but is not being believed because the head of the Congressional Budget Office is telling reporters the agency is in fact studying what effects a VAT would have.
A VAT would tax every stage of production. Some estimate it would have to be set at 16 percent to cover the needed revenues for the current level of spending. This would, of course, shatter the Obama election pledge to not raise taxes by a single dime on those earning less than $250,000.
And, also of course, the income tax would not be replaced.
As is our wont we turn to an authority on governance for guidance. Here is what Thomas Jefferson wrote to Joseph Milligan in 1816:
"Our author’s classification of taxes being taken from those practised in France, will scarcely be intelligible to an American reader; to whom the nature as well as names of some of them must be unknown. The taxes with which we are familiar, class themselves readily according to the basis on which they rest. 1. Capital. 2. Income. 3. Consumption. These may be considered as commensurate; Consumption being generally equal to Income, and Income the annual profit of Capital. A government may select either of these bases for the establishment of its system of taxation and so frame it as to reach the faculties of every member of the society; and to draw from him his equal proportion of the public contributions; and, if this be correctly obtained, it is the perfection of the function of taxation. But when once a government has assumed its basis, to select and tax special articles from either of the other classes, is double taxation. For example, if the system be established on the basis of Income, and his just proportion on that scale has been already drawn from every one, to step into the field of Consumption, and tax special articles in that, as broadcloth or homespun, wine or whiskey, a coach or a wagon, is doubly taxing the same article. For that portion of Income with which these articles are purchased, having already paid its tax as Income, to pay another tax on the thing it purchased, is paying twice for the same thing; it is an aggrievance on the citizens who use these articles in exoneration of those who do not, contrary to the most sacred of the duties of a government, to do equal and impartial justice to all its citizens."