WILL THE VAT LADY SING?

April 23, 2010

The value-added tax is an invisible excise tax added to each phase of a product's production -- really a national sales tax -- with the cost of the total VAT ultimately paid by the final purchaser, regardless of his income or wealth.  A VAT would likely contain some exemptions -- for food, clothing, medicine and housing costs -- but it would impose taxes on most other daily purchases, including gasoline, televisions, automobiles, computers, airfares, cell phones, refrigerators, newspapers and restaurant foods, says Pete du Pont, former governor of Delaware and current policy chairman of the National Center for Policy Analysis. 

The VAT has been in use in European countries since the late 1960s, and has had a strong, negative economic influence, says du Pont: 

  • Before the European VATs were put into effect, the average tax burden in the European Union (EU) was 28 percent of gross domestic product (GDP), compared with the 25 percent in the United States.
  • By 2006, with the VATs, the EU average tax burden was 40 percent compared with 28 percent in America. 

Also: 

  • Average European government spending was about 30 percent of GDP when the VATs were instituted in the late 1960s.
  • Fast forward to today, and we see European government spending has grown more than 50 percent and now hits 47 percent of GDP.
  • And European government debt in 2005 was 50 percent of GDP, compared with under 40 percent in America.  

Perhaps most important, bigger government spending and higher taxes have radically reduced job growth in Europe, says du Pont.  Between 1982 and 2007, Europe created fewer than 10 million new jobs versus 45 million in the United States.  Our economic growth was more than one-third faster, says du Pont. 

What the VAT really does, as we have seen in Europe, is do away with government spending controls. So if enacted by Congress, higher taxes, bigger government, lower economic growth and fewer jobs will be the result, and all of us will soon be living in a new and much less successful America, explains du Pont. 

Source: Pete du Pont, "Will the VAT Lady Sing? If so, it's over for America," Opinion Journal, April 22, 2010. 

For text:

http://online.wsj.com/article/SB10001424052748704133804575198370425467284.html 

 

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