Value Added Tax....Is The American Dream Over?

It has taken awhile, from the perspective of most of the western world, but America is finally heading down the "Value Added Tax" highway. Your government is floating the trial balloons and gauging the reaction but make no mistake they are committed and , to invoke a popular clique,...." the die is cast"....With the debt levels soaring into uncharted territory and with the recession firmly in place major tax change is inevitable,regardless of which party is in power, a value added tax is coming

Over the coming year, especially AFTER the midterms in November, you will be buried under propaganda, from both sides, proclaiming the virtues or folly of a VAT system. Don't be fooled or mislead. Educate yourself research this topic so you are aware of what is going on and can make an informed decision. The politicians are not looking out for your best interest. they are looking out for theirs.

Financially the government is on life support and has only two viable options open to it. Either they drastically cut spending or raise taxes and if we are honest with ourselves we know they must do both. Since no government wants to champion a tax increase they will try very hard to confuse the situation and distort the truth. Be very wary.

Let's take a closer look at the examples of "VAT" around the world and maybe we can get a clearer picture of what is about to be dropped upon every American.... rich or poor.

The idea of taxing "value" goes back at least a century but it was not until 1954 when the Finance Minister of France introduced the first "VAT". Governments love it because they can tax ,not only, the items you buy everyday but a VAT allows the politicians to levy a tax on every service you receive as well. Deeming every service "taxable" would allow the "VAT" to be charged. Examples would be Doctor fees, Lawyer fees, Accountant's fees and every other service you can think off.

While VAT or Value Added Tax is the term used throughout most of the world it is, perhaps,, the Canadians that have the most honest and accurate description. In Canada this tax is called the Goods and Services tax which the Canadians call the GST...actually some refer to it as the GD GST. This is the clearest and most honest definition of the tax. It is basically a sales tax on all goods and services ...aka "VAT"

There are many who will argue that the VAT is not a sales tax but a "structured tax on "value" that is added at every step of the process from the manufacture to the delivery of the item to the consumer. Every time value is added the tax is charged and while the manufacturer, the supplier and the retailer will receive credit for the VAT they paid... you, the consumer, will pay the full amount ....getting the picture yet? Not a sales tax? You will pay this tax on everything you buy and every service you receive. Some have already stated that there will be no exemptions ....everything will be taxed. Others have said that food, drugs,and books might be exempt. Americans are in for a painful change and no matter what details are worked out this tax is exactly what it appears to be .....If it looks like a duck, walks like a duck and sounds like a duck......

The opponents of the VAT decry this government intrusion, into your wallet, as a regressive tax. They claim that the tax hurts the poor and middle class tax payers, more so than the rich, because the tax absorbs a higher percentage of their income. Those who favor this class of taxation claim that the VAT is not only a consumption tax it is also a proportional tax because, in their scenario, the rich buy much more than the poor and therefore pay more VAT. This tax is a consumption tax. It will impact every area of your life especially the poor and the middle class. Some countries have reduced income taxes or offered their most vulnerable citizens tax credits to help ease the burden. This tax is going to be tough on all Americans and you need to prepare yourself for what's coming.

There have been cases, in the world community, where the introduction of a VAT has had such adverse consequences that the losses in economic activity to the overall economy were greater that the income to the government. The introduction, of a VAT, not only made the situation worse it actually contributed to prolonging or worsening an inflationary cycle;. While it may be hard to believe that any politician would actually introduce a VAT in a recessionary cycle and do unnecessary harm to their countries economies it has happened several times.You might want to check out what happened in Canada, England, Norway, and a host of other countries and how the VAT was introduced in those countries. Politicians seldom consider the consequences of their actions especially if they believe "they know better"

One of the unexpected consequences of introducing a VAT, in many countries, was the explosion of the underground economy. All the service areas such as carpentry, home repairs, electrical plumbing, auto repairs ect began doing business in cash without receipts thereby avoiding the VAT. This took place in Canada ,and many other countries, and after nearly 20 years of the GST, in Canada, the underground economy is alive and well. The estimated loss, over that time, in GST revenues to the Canadian government is in the multiple billions of dollars. The people will find a way around a perceived regressive tax. The estimated value of the resultant underground economy in the US, from an imposed VAT, potentially could be in the hundreds of billions.

The "VAT" is now levied in almost 100 counties worldwide. The average rate in Europe is 20%. Canada charges 5% and Mexico 16%. Most of the South American countries levy a 20+% tax. Herein lies another problem facing the US. Using Canada as an example the 5% rate is a bit misleading. The individual Canadian provinces also charge provincial sales taxes which is on top of the GST. So the real level of Sales tax in Canada averages 15% not 5 and the US faces a similar situation. If your state charges sales taxes the new "VAT" will be on top of those. Like Canada many of the states will have a combined sales tax, depending on the level of the VAT, in the 15-20% range.

This may lead to a type of VAT system that will probably look very similar to Canada's GST rather than the European VAT. Like Canada the American government must deal with every state individually. They will want all states to harmonized their state sales tax to the new VAT tax and charge consumers one combined tax. It sounds good but the political and practical differences between the states and the federal government will, probably, make this agreement impossible. What, in the end, will happen is some states will agree to harmonize the tax and some states will not. This will, necessarily, lead to a system of confusing tax laws created to deal with a very confusing new tax system. Another issue that will not be well received is the method of collecting and submitting the tax. In Canada all businesses had to become de facto tax collectors for the federal government collecting the GST at the point of sale and submitting the revenue to the federal government. For those provinces that have not harmonized the taxes this means that those business have to collect submit, and process paperwork to two tax authorities. More expense in time and money for the already hammered business sector. The Canadian federal and provincial governments also could not agree so in Canada you have a patch work of jurisdictions collecting the GST. Some provinces have harmonized the taxes while the rest have not. Alter 20 years the problems still remain.

Contrary to recent political pronouncements you cannot spend your way out of a recession with money you don't have. This leads to deficits, higher interest rates , higher debt levels which, when combined, will have the effect of shrinking not growing the economy. This approach produces what many economist refer to as a "jobless recovery". On paper the economy appears to be growing but no jobs are being created. A true sustainable recovery cannot occur without job creation. It is also a falsehood to believe you can tax your way to a balanced budget. For those who think so I would urge you to check out the condition of the 100 or so countries that have had a VAT in place for years. Every one of those countries are wallowing in debt, deficits, and high unemployment just like the US. Excessive taxation only hurts economic growth. How many times must that be proven out. Where are all the economists who should be speaking out about what this country needs and doesn't need. Everyone needs to speak up and speak out.......time is running short.

The vast majority of the economic activity in the US is driven by the consumer. Without a strong employment picture there can be no "recovery". It is time to focus on jobs and job creation. It is time to allow business to do what they do best. It is time for government to get out of the way and let the entrepreneurial spirit that still lives in this country lead us out of this self inflicted quagmire

It is time for the people to lead and the politicians to follow for the greatness of America cannot be found in it's governments, Democrat or Republican, the greatness of America.... is found in it's people. This is an historic moment in time for... America and for "We The People.......Stand up and be counted, Speak up and be heard or else the politicians, who already think of "We The People" as a petty annoyance at best and a bunch of rabble not worthy of their valuable time at worst will continue to destroy our economy and ,if we don't stop them,... our country