Enter the Value-Added Tax (VAT). Vedran Vuk writes:
VAT works like a backdoor sales tax. Essentially, every time a producer of goods purchases raw materials, he must pay a percentage tax. When the producer sells his goods to a wholesaler, the wholesaler pays another percentage.Libertarians are quick to point out that government doesn't work, but clearly it does -- for the government. The twentieth century in the U.S. saw the advent of central banking and the withholding tax, two Machiavellian methods of taking Joe's money without getting Joe to rebel. Will he put up with the VAT too?
It sounds bad already, but here’s the worst part. Each company down the supply chain gets a tax discount based on the next company’s tax payment. Through this method, every firm in the chain has an incentive to make sure that the next one pays the full amount. If they don’t, then your company is left holding the bag.
In other words, the VAT makes every businessman an agent of the IRS. In the end, the higher cost of goods is passed down to consumers. However, unlike sales taxes, consumers will never see the bill directly on their receipts. This makes VAT far more politically efficient and insidious.