Why the VAT Exposes Americans to More Government
By Jeremy Weltmer
Tuesday, May 18, 2010 12:13 pm
As transparent as the VAT may seem, the very nature of the tax hides its true cost from the consumer with each purchase, and because of that (and because purchase-by purchase, the amounts seem comparatively small next to income taxes), it remains dangerously easy for a cash-strapped government to raise. It seems painless—citizens pay a little more at the register, but never enough more to brook significant discontent.
Europe shows this abundantly clearly; after enacting a VAT, taxes as a percentage of GDP
rose dramatically in the following decade. Indeed, some Scandinavian countries ended up with over 40% of GDP going towards taxation.
Luckily, as it stands, US tax law could never lead to such an onerous and uncompetitive tax burden. In 1993, a San Francisco investment economist named W. Kurt Hauser wrote that "no matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." As David Ranson then further argued in his 2008
Wall Street Journal editorials, no matter the bracket and time period, so long as the federal government collected taxes on income, tax revenue always approximated 19.5% of GDP because as tax bills rose, it became a cost imperative of those with the largest burden to avoid taxes however possible or arguably legal.
While the US faces a budget crisis, the inability of income taxes to exceed this threshold sets a maximum cap on the cost of the federal government; no matter how Congress or the IRS try, revenues cannot exceed a fixed level. This has led to debt, but inexorably protects United States taxpayers from an endlessly expanding government.
The VAT offers no such protection, and as it would be coupled with income taxes rather than supplanting them, it would expose the US citizenry to a much higher possible threshold of government.