“They say they’re not going to take any water out of your side of the bucket,
just the other side of the bucket.”
Yesterday, we learned that Nancy Pelosi is open to looking at the Value-Added Tax (VAT) as part of a Democrat-led overhaul of the tax code. I was tempted to write about it with a few minutes of spare time which arose a little after noon, but I remembered that in the evening I had my Federal Income Taxation class, and thought it apropos enough to wait.
So, at about 7:00 p.m., as we moved from one section of our text into another and postured for a brief break in between, I asked my professor–a former IRS official–what I had been meaning to ask all day.
“Professor,” I said, after he acknowledged my raised hand from the fourth row back. “If you don’t mind, I have a question that’s not exactly related to the matter at hand.”
“Sure,” he said. “Go for it.”
“Could you explain briefly what exactly the Value-Added Tax is?”
Immediately after I asked the question, I noticed an African-American conservative classmate in front of me nod his head. Obviously, he had encountered during the day the same article in The Hill as had I. Now, I knew–roughly–the answer to my question, as it was touched upon in the piece about Pelosi and because I had learned a little during similar debates in the past, but knowing essentially what the answer would be, I wanted my mostly Obama-loving, liberal classmates to hear the explanation from someone with a little more credibility than myself.
The professor nodded, leaned up against the podium at the front of the room, and explained that the VAT in many ways has the same effect as a sales tax, only that it is concentrated on manufacturers and the manufacturing process. In two words, he described it as a “manufacturer killer,” and went on to give an example using the automotive industry.
“The Value-Added Tax is just that, a tax assessed as value is added to a certain product during the course of the manufacturing process,” he said. “If the product in question is a car battery, let’s say, then the car battery would have a tax on its market value added when it leaves the battery manufacturing plant, and then again when it reaches General Motors as the value of the battery is added to a vehicle, and so on.”
The increased cost as a result of the tax, he said, would ultimately be passed along to the consumer. In the case of his battery example, the car coming off of the assembly line would cost more because it wouldn’t only be the battery subject to the tax, but any other components coming in from various points in a distribution process as well.
To justify her willingness to put the VAT “on the table,” according to the Hill piece Pelosi maintained that it would “level the playing field between U.S. and foreign manufacturers,” the latter having the advantage of avoiding the pension and health care cost burdens shouldered by their American counterparts. Without mentioning Pelosi’s name, I asked my professor whether the idea that the VAT could be used to do just that would be a reality, or a myth.
“Oh, I’d say that’s a myth,” he said, adding that even if the VAT were somehow targeted for foreign manufacturers only, many of those manufacturers in Europe especially already have such a cost figured into their final pricing scheme.
What I didn’t ask about in class was the overall absurdity of Pelosi’s contention that whatever changes were made to the tax code–including a VAT–would not result in an increase in taxes on middle-class Americans. I already know the answer to it. Heck, Fred Thompson put it best when he said, wryly, that the Democrats would never, ever take the water out of your side of the bucket — just the other side.
And that’s what this is. The Value-Added Tax is a killer of manufacturers, and therefore a killer of jobs and a killer of consumer confidence. It might not be a direct income tax increase on the middle class, but it would most definitely result in middle-class American families feeling the additional tax burden in the price of everything they buy. So much for those empty promises made by the president.
Equally absurd is Pelosi’s idea that a VAT could help the country “address its fiscal liabilities.” The people of the United States ARE the United States, and if Congress destroys what little is left of our manufacturing and drives up costs of just about everything, tax revenue will suffer, jobs will be lost, and Americans will be at the mercy of foreign manufacturers with regard to everyday products used. The way to address our nation’s fiscal liabilities is to stop adding to them. Stop the wasteful spending. Go through each program with a fine-toothed comb in order to weed out waste and redundancy. Don’t dare add trillions in unfunded liabilities in the form of sweeping health care reform.
When the average American family sees a sharp rise in its fiscal liabilities, perhaps due to an increased mortgage payment or a whole new set of bills thanks to a newborn baby being added to the household, the only option for that family is to rid themselves of other fiscal liabilities until the situation is at least sustainable. As it stands now in America, we’re spending hundreds of billions of dollars each year simply to service the debt we owe.
My professor chuckled when I finally did get political and suggested that we jettison whatever fiscal liabilities we have before adding any more, and certainly before trying to fix the problem with a tax increase. And from somewhere in the room, I heard someone say: “Like the war.”
But that’s the answer Pelosi is searching for but desperately doesn’t want to employ. Just like a struggling American family must cut costs by changing mobile phone plans or cutting cable television or shopping at a discount supermarket, the American federal government should address its own fiscal liabilities in the same way.