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Taxed Enough Yet?

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As April 15th arrives again, we are all thinking of taxes, tax forms and tax refunds.  Now, we have a new tax to worry about, one that will hit us every time we pull out our wallet.

The government is floating the idea of a VAT tax.  Most people don’t really know what a VAT tax means.  The Value Added Tax (VAT) is a consumption tax, similar to a sales tax.  However, unlike sales tax, which you see on your receipt, the VAT is hidden in the price of the item itself, so you don’t really know how much of it you are paying.

This is how it works.  A tax is levied every time, during the manufacturing process, value is added to a product.  One example is kitchen cabinets.  The logger cuts down oak trees and delivers them to a lumber mill.  Tax.  The lumber mill cuts the oak into boards and plywood.  Tax.  The cabinet manufacturer turns the wood into cabinets.  Tax.  You buy the cabinets.  All you see is the price of the cabinets plus the sales tax, but the price of the cabinets has gotten much larger.  All you really know is that it is a lot more expensive to redo your kitchen.

Governments love VAT, because it gives them huge amounts of money to spend without a lot of blowback from taxpayers.  It is far easier to raise a VAT tax than it is an income tax.  Everyone sees the income tax on his or her paycheck stub.  Nobody sees a VAT tax.  It is hidden by design.

There has also been a lot of talk about a national sales tax, like the popular Fair Tax proposal.  This is far different than the VAT tax.  The Fair Tax is designed to replace the income tax, while the VAT tax is in addition to the income tax.

The VAT tax is really the evil twin of compounding interest, which is the bedrock of sensible saving plans.  You save some money each month, putting it in an account that earns interest.  As you add money each month, the interest the account makes is added in with your savings and earns more and more interest, and after some decades, it allows you to retire with a comfortable nest egg.  With the VAT tax, the tax is compounded on itself many times, adding more and more and more to the price of goods and services and robbing you of your hard-earned money.

Many European countries have a VAT tax between 15% and 25%.  We also know that these European countries have high unemployment, a stagnant economy, high taxes and a heavy-handed government.  I don’t know about anyone else, but the idea of paying another 20% or so on everything I buy doesn’t appeal to me very much.

This tax will hit everyone, but it will have the biggest impact on the poor.  Middle class earners and the wealthy will feel the pinch and may have to cut back, but the poor have no way of cutting back.  How will the elderly and people living paycheck to paycheck manage when everything they buy costs 20% or more than it does now?  All so our elected leaders can continue to spend.

I notice that nobody in government is talking about cutting spending, which is the real solution to our nation’s budget crisis.  Most people outside of Washington understand this; our country’s current fiscal mess isn’t because we aren’t paying enough taxes, it is because there is far too much spending.  Government will always want to spend 5% to 10% more than they are taking in; it seems to be their nature.  If we don’t stop Congress from doing this, it will be shoved down our throats, just as Obamacare was.

 
 

 

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Larry Bertolino

Larry Bertolino

Owner at myLocalPCpro
Larry Bertolino is a 31 year old, U.S Navy Veteran and currently sitting on the board of Directors for the Harrison County Chamber of Commerce, as well as Harrison County Rural Transit.
Larry Bertolino
Larry Bertolino

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Short URL: http://thisismycounty.com/?p=2086

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Posted by on April 15, 2010, 5:36 pm. Filed under Featured, John Lovejoy, Politics, ThisIsMyCounty. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry