As he always does, the venerable John McLaughlin closed his show Sunday morning with a prediction, and it was one which would have done Cassandra proud. He predicted that by early next year we would see the passage of a national sales tax or value added tax.
This is hardly a new idea, but it seems to have gained credibility in the current environment of massive debt, deficits and uncontrolled spending. Most European nations have value added taxes and the idea was given serious consideration by Democrats last year. It's even similar to the FairTax which many on the political right support, with the key difference being that the intent of the FairTax is to replace the income tax while a value added tax would be levied in addition to other existing taxes.
Now, in the face of massive debt and ballooning obligations for national health care and social welfare spending, the idea of a national value added tax is becoming increasingly attractive to the administration and Democrats in Congress. It may not be the only way out of the financial crisis, but it is certainly the easy way out. After all, why spend responsibly when every new excess can be offset by placing ever greater demands on the limited resources of the working people of the nation?
As things stand right now, the tax burden on US citizens is already approaching the level of the most overtaxed nations in the world like Denmark, France and Japan. With the inclusion of state and local taxes, which range between 6% and 13% depending on the state, some Americans pay over 50% of their income in taxes. In addition, the distribution of taxation is very uneven, with the top half of income earners paying almost all of the taxes while lower income earners pay little or nothing. More and more government spending is directed towards those who pay little or no taxes as the tax burden on higher earners continues to increase.
This has already led to a feeling of desperation among taxpayers, who see the cost of out-of-control government spending coming out of their shrinking paychecks. It is this despair which has produced the Tea Party movement as a grassroots effort to stop the juggernaut of federal spending and debt before it runs over and crushes us all.
Everyone knows that the government's current sources of revenue cannot possibly meet their growing obligations. Of course, this doesn't stop the government from spending and spending. Rather than being responsible and making cuts, now they think that a value added tax is the easy way out. Each 1% in VAT would generate close to $1 trillion in new government revenue per decade, which means that it wold take a 5% VAT to offset the difference between the current budget and the 2008 budget. Add on another 5% if you want to balance out the ballooning future costs of social security and national health care.
That's 10% added onto the tax burden of every American who pays taxes, which comes down to close to a 50% increase in actual taxes paid for the average taxpayer. Because it is a sales tax its impact is much larger on the taxpayer than an equivalent increase in income tax as currently structured. In real terms that VAT is an enormous tax increase which will literally bring many hard-pressed working people to their knees. It will drive people into poverty and debt, destroy savings and investments, lead to bankruptcies and foreclosures as well as further weakening of national productivity.
This means fewer and fewer people paying more and more taxes. Taxpayers are protesting now. If a VAT gets passed on the same kind of partisan basis and disregard for the desires of the people as we saw with the passage of health care, the already high level of anger may well flare out of control. Taxpayers already have a heightened awareness of this issue and will see a VAT as a loaded gun pointed at their heads. Millions are protesting now. If a VAT passes it could be the thing which touches off outright revolution.
Of course, the mere threat of a value added tax along with the massive hidden tax cost of cap and trade may be enough to bring about a political revolution before any further dangerous legislation passes. Increasing numbers of Democrats are joining Tea Party groups, largely out of protest over government stimulus and bailout spending. The Democrats in power have been ignoring the will and the anger of the people, but if they won't listen, there's an election just seven months away and they can all be voted out of office.
Let us hope that our constitutional system of elective representation solves this problem before angry citizens go to greater extremes. If the political elite doesn't get the message that the era of tax and spend is over, then let's tell them that their careers are over.