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 "The irony is that the VAT is probably the ideal tax from a conservative point of view," effused Bruce Bartlett recently in a Forbes magazine article subtitled, "A money machine that conservatives shouldn't oppose."
Bruce Bartlett, who got his start in adult life under the tutelage of Pearl Harbor researcher and Austrian economist Percy Greaves as well as doing a brief stint in Ron Paul's congressional office in 1976, should have turned out better. Having been a cheerleader in support of the need for a pre-emptive invasion of Iraq by the United States, then complaining he didn't like the massive increase in government growth and spending that was concomitant with it, he is now out promoting a value added tax (VAT) to help pay for the whole mess that is our current federal government.
To clarify Mr. Bartlett's opinion, that would be the neo-conservative point of view. The point of view that understands that you can't have big wars without big governments. This was the point of view recognized clearly by the founder of The John Birch Society, Robert Welch, when he wrote in the founding Blue Book for the Society, "you will find that it is the huge quantity of government which, more than anything else, makes these tremendously destructive wars not only possible, but unavoidable."
Not surprisingly, the fat cats who are living large off our endless War on Terror are more than happy to pay people like Mr. Bartlett to suggest a "money machine" to underwrite the costs of their "war machine" that has become our government.
So, what is the VAT? In simplest terms, it is a tax on all human action. Under a VAT regime, every economic transaction is taxed by the central government. Sell a bushel of wheat to the miller, the miller pays a tax. Sell a bag of flour to the baker, the baker pays a tax. Sell a loaf of bread to a consumer, the consumer pays a tax. Take Leonard Read's I Pencil essay and assess a central government tax on each step of the production process and you'll get the idea.
To make the system supposedly desirable, each person in the chain (except the final consumer) can claim a credit for the taxes he paid that were passed on to him. Thus, the ultimate tax paid by any one producer is only on the "value added" that producer put into the product he passed up the chain. That this tax scheme was birthed in Germany during the interwar period that eventually created the war machine of the National Socialists (Nazis) is not insignificant.
Also not insignificant is how a VAT can be used as a weapon to create economic union. Mr. Bartlett himself details how the VAT was used to integrate the economies of the European Union:
In the 1960s, Europe began the process of full economic and political integration. One problem that quickly developed was how to prevent domestic sales taxes from creating a cascading effect--goods could be much more heavily taxed depending only on how many countries they passed through. This was considered a serious barrier to free trade. At this point, the VAT's system of having an invoice trail was very attractive because it meant that the tax could be rebated at the border on exports. Consequently, goods would bear only the tax imposed in the country of final sale. Eventually, all members of the European Union were required to have a VAT.
Note that Bartlett admits that the process of full economic and political integration in Europe began in the 1960's. Of course, that would have been news to the people of the various European Common Market countries, who where assured at the time (just as we are today concerning free trade agreements like NAFTA) that the process was only about creating economic prosperity.
That "the tax could be rebated at the border on exports" is an additional key attribute of a VAT. Under the General Agreements on Tariffs and Trade (GATT) that became the United Nation's World Trade Organization (WTO), a VAT rebate at the border to domestic producers who export is not considered a government subsidy. That the United States government has continued to accept this scheme as valid is likely the single largest cause of de-industrializing the country.
With typical VAT's running around 17 percent, a producer in a VAT country can get a $17 dollar home government sponsored kickback for every $100 of product it exports. Thus, the producer has the competitive option to charge only $83 to an importer in another country. If an importing country like the U.S. imposes low or no tariffs on the VAT country based producer's product, the importer immediately has a $17 dollar advantage over any domestic supplier producing similar items.
The advantage the producer in the VAT country enjoys also applies to competition in his home market. In a typical case, imports coming into the VAT country are charged a 17 percent entry VAT (tariff). This arrangement means that a producer in a non-VAT country like the U.S. would have $17 added on to his cost structure for every $100 of product shipped into the VAT country without enjoying any offsetting government kickback in his home country. Thus, because of the U.S. accepting the WTO accredited VAT scheme, a U.S. producer is typically set up at a $17 disadvantage in both his home market and his export markets. He gets hit both ways for a total 34 percent disadvantage against his VAT enriched competitors.
Of course, some producers in the U.S. have been able to finagle their own tax kickbacks with the US government, but the majority of these involve credits and loan guarantees for moving their production offshore into countries operating under a VAT regime. Nonetheless, it is a bit late in the game to suggest that the real solution to our production problems in the United States is to finally get in the game with a VAT like all the other socialist/fascist economies around the rest of the world. This is especially because the VAT being proposed for the United States is not for the purpose of supporting productive industry but instead it is for the purpose of continuing the expansion of unproductive government.
The argument for a VAT that Mr. Bartlett and others are promoting boils down to this: All resistance is futile. Leviathan must be fed with ever increasing amounts of value sucked from all human action. The money machine that is the VAT is necessary. Get used to worldwide socialism. It's time the United States formally join the party.
Of course, The John Birch Society has always disagreed with such defeatist logic. Promoting a VAT to "tax consumption" and "level the playing field" for what is left of U.S. manufactures not controlled by the federal government or creditors is not an acceptable option for those who cherish freedom.
The first and foremost solution to our country's financial problems is to shrink federal spending. We don't need a new VAT tax scheme to increase the government's take from all of us. We need less government. Bringing our soldiers home from the bases and outposts of empire around the world is a good first start.
The other thing that must be done is to terminate our trade policy of domestic de-industrialization and international integration. The theory of competitive advantage only works in a world where governments are not engaged in the manipulation and destruction of free markets.
To re-establish a vibrant economy in the United States, we should terminate our membership in the WTO and UN and we should abolish the income tax. We need simply return to a federal (not imperial) government of a size that can be afforded by the application of import tariffs as originally designed in the Constitution of the United States.
A single improvement over our original hotly contested tariff system would be that the tariff should be a flat percentage on all goods and services regardless of their source of origin. This is the kind of level, not preferential, playing field that we should be trying to establish. We only need raise enough of an income stream to support a basic level of government to protect us from our enemies. A ten percent tariff or something less than the ancient tithe of the Bible would be a good standard to benchmark off of.
Creating a VAT that institutionalizes government as a parasite upon all human action is not the road to freedom. At its best, to accept a VAT is to countenance the slavery of socialism and we don't need any more of that. |
New York Times journalist David Leonhardt 
Here's a bill all of us need to get behind to help break the Federal Reserve's stranglehold on our money, our economy, and our freedom.