You don’t have to be a math wizard or an accountant or an economist to know that sooner or later when you owe money, you are going to have to pay it back. If you spend more than you take, eventually you will go broke. We all learned that when were kids…and in our adult life as more and more of us visit the local bankruptcy court as we fend off foreclosure actions. Somebody always has to pay!!So I have a hard time understanding what our government is doing with ever increasing deficits. Who is going to pay for all of this spending? That is a politically neutral question. There are two ways a government can pay what it owes. It can print money, devaluing the currency thus cutting what is owed by the amount of devaluation; or they can raise taxes and take what you have to pay what they owe. Those are the only two choices. There are no others.
So it is with a degree of bewilderment that I have watched the government continue to spend, spend and spend. As I watch the figures pile up, and watch Barack Obama pay lip service to deficit reduction, but continue to spend with almost drunken abandon, I wonder what I am missing? Does he really not care that he is spending us into the poor house in ways this country could not possible imagined even as few as three years ago? He can’t be that stupid?
Then while watching a morning news show today, I had an epiphany. He isn’t stupid. He is clever…and has a plan. He’s not worried about the deficit and the amount of spending that is going on because he plans on paying it back exactly using the two ways I mentioned above…devalue the currency and raise taxes.
The Federal Reserve is taking care of the currency devaluation part of the plan. It has been pouring money into the economy like a tsunami over the past two years. Are you watching food prices go up? That’s why. When money is pushed into circulation, it has to land somewhere. It has landed in commodities like wheat and corn and oil and sugar…and the prices are going up at a rate not seen since 1974.
But it’s the tax part that is interesting. Everyone agrees that something has to be done with “taxes”, whether it is to raise them or lower them or change them. Underneath all of the rhetoric looms the biggest tax hike of them all, the Value Added Tax. Republicans are for it. Democrats are for it, and Obama’s advisers have quietly given it the old wink and nod because it is a hidden tax. It is one they can raise, and you won’t know it!!!!
A VAT tax is a tax that is levied on goods as they are in being produced. Every time a nut gets screwed on to a bolt, value has been added and that value added will be taxed and paid by the company who screwed the nut on the bolt. Think of all the steps that go into making a car, from the production of steel all the way to the showroom floor where the dealership does the final prep for delivery to its customer. Think of taxes on all of those steps…and you as the consumer…don’t see it. But you as a consumer will pay for it!! It’s not like you would see a Vat tax hike like an increase in property or a sales tax, or as you are moved up into another income tax bracket. It will just seem like the price of whatever it is your buying is somehow more expensive.
It is a regressive tax…which is exactly what is needed to fix the revenue portion of government finances when more than 50% of Americans pay no income tax…and 70% of Federal income taxes are paid by the top 10% of wage earners. It can’t go on like that forever. To quote Margaret Thatcher, sooner or later you run out of other people's money. With a VAT, everybody pays based on what they spend rather than what they earn.
The debate on VAT will begin in the 2012 election. The debate won't be whether there will be a VAT, but how it will be implemented. Republicans want to scrap the IRS and all of its associated costs, and mover all Federal taxation to a VAT or a FAIR Tax (Fair Tax is a national sales tax). Democrats, on the other hand, want to keep the income tax, and add this hidden tax so they can tax some more and you really won’t know it. I don’t have tell you which end of the argument I am on.
Nonetheless, it is coming. You will see it implemented right after the next presidential election. Obama knows it, which is why he has that “What? Me Worry” look on his face most of the time.
There are a lot of good things about a VAT or Fair Tax, and both are certainly worth considering if done right. On the other hand, unless there is proper implementation, it can turn into a cash cow with endless milk that you will be producing.
In the meantime, watch your wallet.
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