Tag Archives: VAT

Commentary

The VAT as a replacement or add-on to the income tax

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From the Heritage Foundation. (H/T ECM)

Excerpt:

Revenue-neutral tax reform involving a VAT substituting for income tax raises a number of concerns, but its one advantage might be that it would reduce or even eliminate the net bias against saving. Such a reform would quickly begin to raise the level of private savings and the private saving rate.

The same cannot be said of adding a VAT to the current tax system. Adding a VAT would not have the same beneficial effects as substituting a VAT because, obviously enough, the anti-savings biases of the current system would remain intact.

Even more telling, a massive VAT-based tax hike would slash the after-tax purchasing power of individuals and families. As they adjusted to the new tax, an early casualty would be private saving.

[…]VAT proponents who seek massive new sources of revenue—whether in the short run to pay for President Obama’s spending surge or to address the nation’s unsustainable long-term fiscal imbalance—sometimes misapply arguments that have some validity in the context of a revenue-neutral tax reform. A good example is the argument that a VAT would increase private saving.

However, as an add-on tax, the VAT would not improve saving incentives as some suggest but would instead hammer private savings for an extended period as individuals and families slash their saving rates to sustain current consumption in light of the VAT’s higher prices.

I am pro-VAT, but only if it is revenue-neutral and is coupled with a cap on federal spending, indexed to inflation. A freeze would be better still!

What’s your view of taxation? Do you like a flat tax or the FAIR tax? Which taxes would you cut and which ones would you raise? What effect would it have on working families and their employers?

News

Average Canadian family spends 42% of its income on taxes

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Story here from the libertarian Fraser Institute.

Excerpt:

The total tax bill for the average Canadian family has increased at a much faster rate since 1961 than any other single household expenditure, according to a new study released today by the Fraser Institute, Canada’s leading public policy think tank. The Canadian Consumer Tax Index 2010, which calculates the total tax bill of the average Canadian family, found that taxes have increased by a whopping 1,624% since 1961. In contrast, expenditures on housing increased by 1,198%, food by 559%, and clothing by 526% from 1961 to 2009. “Taxes have grown much more rapidly than any other single expenditure item for Canadian families to the point where taxes from all levels of government take a greater part of a family’s income than basic necessities such as food, clothing, and housing,” said Niels Veldhuis, the study’s co-author and the Institute’s senior economist.

How much do Canadians pay in taxes?

The Canadian Consumer Tax Index calculates the total tax bill of the typical Canadian family by adding up the various taxes that the family pays to federal, provincial, and local governments. These include direct taxes such as income taxes, sales taxes, Employment Insurance and Canadian Pension Plan contributions, as well as “hidden” taxes such as import duties, excise taxes on tobacco and alcohol, amusement taxes, and gas taxes.

This year’s index shows that even though family incomes have increased significantly since 1961, the total tax bill has increased at a much higher rate.

  • In 2009, the average Canadian family earned an income of $69,175 and paid total taxes equaling $28,878-41.7 per cent of its income.
  • In 1961, the average Canadian family earned an income of $5,000 and paid $1,675 in total taxes-33.5 per cent of its income.

Taxes have become the most significant item that Canadian consumers now face in their budgets,” Veldhuis said.

So the typical Canadian family, pays 42% of their family income in taxes. FORTY-TWO PERCENT. Remember, Canada has a VAT tax, which is what Obama is apparently considering to pay for all his spending on bailouts for his rich Democrat buddies.

The Fraser Institute is the equivalent of our Cato Institute. I don’t agree with either of them on many things, (e.g. – Darwinism), but on the topic of taxes being too high, I agree with them both.

Videos

What are the effects of Nancy Pelosi’s proposed national sales tax?

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Watch this video by libertarian Dan Mitchell of the Cato Institute. (H/T Power Line via ECM)

I normally don’t like these Dan Mitchell videos, but this one is better than the others I’ve seen at giving you a great introduction to so many useful topics.

The national sales tax would be a GREAT idea, if we went on to remove an equivalent amount of revenue from the income tax. It’s much better to tax consumption than productive work. But that’s not what the Democrats want to do with this value-added tax. They want both income and consumption taxes, so they get a new revenue stream and more money to buy votes from their favorite special interest groups.

Here is a Wall Street Journal article about the Democrats’ proposed VAT.

Excerpt:

The allure of a VAT for politicians is that it applies to every level of production or service, rakes in piles of money, and is largely hidden from those who ultimately pay it—namely, consumers. With a $9 trillion 10-year budget deficit, $4 trillion in spending in fiscal 2010 alone, and a $1 trillion (at a minimum) health-care entitlement in the wings, Mrs. Pelosi knows that not even the revenue from the expiration of the lower Bush tax rates in 2011 will cover the bills. Nearly every European country that has passed national health care has also eventually imposed a VAT, and it’s foolish to think the U.S. will be different.

Tax and spend.