Pelosi Looking at VAT

They really are just Tax and Spend liberals:

Pelosi, appearing on PBS's "The Charlie Rose Show" asserted that "it's fair to look at" the VAT as part of an overhaul of the nation's tax code.

"I would say, Put everything on the table and subject it to the scrutiny that it deserves," Pelosi told Rose when asked if the VAT has any appeal to her.

The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.

Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes.

"They get a tax off of that and they use that money to pay the healthcare for their own workers," Pelosi said, using the example of auto manufacturers. "So their cars coming into our country don't have a healthcare component cost.

It is just amazing that such an idiot is Speaker of the House. Her argument for a VAT makes no practical sense. She says it would "level the playing" field? How would adding taxes to every stage of production level the playing field? If anything it would level the playing field in the favor of foreign manufacturers. As someone who has bought or leased a few cars and has been in the car market, the problem of US car manufacturers is definitely not price. Hondas, Toyotas and all those German manufacturers are usually more expensive than their American counterparts. However the reason I only lease or buy Hondas or Toyotas is because they are higher QUALITY cars, made by non-union labor. Adding a VAT would actually end up making US cars more expensive, and would really kill the American car manufacturers (okay, they are pretty much already dead, but I guess this would make them "deader" if that were a word). And as someone with a passport I have seen how much cars cost outside the US when you add VAT taxes in, as European consumers have to do when they buy cars, they become very expensive.

Another issue with the VAT is that it is a massive hidden tax. The current sales tax is only a tax on final sales. So on your receipt you see how much of what you are paying is taxes. With a VAT, you have no idea how much of your purchase is taxes. And neither does the store owner. He only knows how much VAT he paid to his wholesaler, but not how much VAT that wholesaler paid to his suppliers.

The Heritage Foundation has a nice piece on VAT's here:

Hidden Tax Increase and More Power to Washington

A VAT piled on top of current income and payroll taxes would suffer from the following additional problems:

Hidden Tax Increase. Sound tax policy requires that taxes be transparent to taxpayers. But taxpayers will not see the portion of the VAT paid by businesses unless Congress requires that businesses show the full VAT paid on receipts. Even then, however, taxpayers could be unaware of the total amount they pay because they are unlikely to keep their receipts and add up the total annually.

Economic Distortion. Taxes impose a cost on society above their explicit price because they reduce economic efficiency. Economists generally agree that VATs are more efficient than most of the taxes currently imposed on U.S. taxpayers. But that is only if they apply to all goods and services in an economy.

Due to political considerations, a VAT in addition to current taxes would likely exempt politically sensitive items like food, clothing, health care, and housing. This would drive the tax rate higher to achieve the same amount of revenue and impose new economic distortions. Industries that get an exemption will be more profitable, compared to taxable industries, than they would have been without the tax. This means more capital will flow to these industries. This will lower economic well-being because capital will not flow to its most efficient market-determined use.

More Economic Power to Washington. A VAT not levied on all goods and services would give Congress even more power over the economy. Industries would lobby heavily for exemptions from the VAT for the economic benefits described above. This would give Congress an even larger roll in picking winners and losers in the marketplace. Success would depend less on ingenuity and hard work and more on the ability to gain political favor.

Bigger Government and VATs

Opponents of a VAT often point to Europe and their bloated government sectors as evidence that VATs cause government spending to grow. They argue that VATs are hidden and less economically damaging than a corporate income tax, for example. So governments are able to raise more revenue at less political risk with a VAT. But the causal direction is unclear: It is just as likely that European nations chose to spend more and relied on VATs to fund their largess.

If so, then this pattern would parallel the pattern President Obama is seeking to establish in the U.S. now with government spending soaring, greatly ratcheting up the pressure for tax hikes. Congress and President Obama have recently increased spending by trillions of dollars. First they passed the ineffective stimulus that cost $787 billion. They then passed an irresponsible budget that increases the debt by $7,500 billion over 10 years. Now they are working to spend trillions more to fund government-run health care and an even more expensive cap-and-tax environmental regulation regime.

If you thought the tea parties were big this summer, just wait until they actually decide to try to get the VAT through.