Money $marts: Flat or vat tax?

GERRY KRAMER

“Our federal income tax system is senseless…and infused with complexity and uncertainty brought on by lobbyist influences, politically expedient compromises, social engineering objectives, industry promotion policies and punitive reasoning.”

Nothing has changed since I wrote that a few weeks ago, but with campaign season upon us, there are two tax “reform” proposals being offered by candidates: a flat tax and a value added tax (vat). Unfortunately, the one with the best odds of ultimate adoption is the one that’s most dangerous.

The flat tax idea was in serious consideration two decades ago but didn’t gain traction. The concept in its simplest form is one rate for everyone applied above a specified annual income level, say $20,000; no deductions, exemptions, or credits. “File your taxes on a postcard” was the rallying cry of the flat tax advocates. The actual rate and the starting base were the two factors of contention.

Proposals by GOP presidential candidates today aren’t nearly as clean (e.g. some deductions would still be allowed) but the general idea of simplicity remains. According to supporters, another benefit of a flat tax is the unlocking of resources so inefficiently employed today in complying with the complex tax code. Think of all the tax preparers, IRS employees, accountants, lobbyists and taxpayers that would have to redirect their time to more productive endeavors; what a boost to the economy.

Alas, unless we get a complete regime change in Washington the flat tax concept won’t fly. The power class in Washington like things complex; with simple there’s little to negotiate or promise. Further, the liberals don’t like fairness that’s really fair — everyone treated the same way. They get much more benefit from the Robin Hood progressive concept of the evil rich paying more.

Sadly, the general public seems to be with them on this. Polls show less than 50 percent support for a flat tax. Liberals also say a flat tax won’t raise enough revenue to cover government spending requirements. While this is not true, the argument gains more anti-flat tax supporters. So barring a complete route of the Democrats (including Obama) in November, the flat tax idea is a nonstarter.

The value added tax (vat) on the other hand, seems to have the support of both sides of the political aisle. The vat is a tax levied on the sale of a product at each stage of production — as value is added — and at the final sale. Hence, advocates like to describe vat as a tax on consumption, like a sales tax.

Replacing the current income tax with a vat would be an act of true reform, but not necessarily beneficial (think healthcare reform) to the economy. That’s because the vat is in essence a tax on production which can lead to less economic growth and prosperity. But politicians love vat because it is another source of revenue. Thus both parties in their tax “reform” proposals (Obama has one too) consider a vat in addition to income taxes. The last thing we need is another tax and source of revenue for politicians to spend and dicker over. But the vat looks like a contender in the “reform” fight.

- - -

Write to gerryk3001@yahoo.com.

© 2012 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

  • Discuss
  • Print

Comments » 0

Be the first to post a comment!

Share your thoughts

Comments are the sole responsibility of the person posting them. You agree not to post comments that are off topic, defamatory, obscene, abusive, threatening or an invasion of privacy. Violators may be banned. Click here for our full user agreement.

Comments can be shared on Facebook and Yahoo!. Add both options by connecting your profiles.

Features