Sunday, April 18, 2010

Governments prowl for more revenue

Governments much prefer to acquire their revenue like thieves in the night. And like smart thieves, they take care to leave evidence implicating some other party or class. Inflation is the classic method of underhanded theft, but printing too much money has been known to hurt even the printers. A variation on the invisible tax approach is raising tax rates on the rich. Because most people aren't rich and never will be, they don't care. But one can only shake so much money from a piggy bank, even if it is a big one, and when that source dries up government can move down the line to anyone with a dime in his pocket. Democracies have always wrapped their arms around the poor, but if they start squeezing the game is over. So what can a rapacious government get away with in today's world?

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.

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.
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?

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