Beware of the value-added tax

Washington Democrats, who surprisingly have former Federal Reserve chairman Paul Volcker in their corner, are considering adding a valued-added tax to their revenue tree--while of course raising other taxes as well.

From the New York Post:

The VAT is a type of national sales tax, levied on the value-added at each stage of production. Consider a piece of furniture: The VAT would be imposed when the raw timber is sold, when the sawmill produces lumber, when the manufacturer builds a chair, a tax at the wholesaler level and then when a retailer sells the chair to a consumer.

To avoid double taxation, each seller along the way gets a credit for taxes paid at earlier stages of the production process. So the final tax to the consumer, at least in theory, is the same as a retail sales tax of the same amount.

Sounds harmless: It isn't.

The real-world evidence shows that VATs are strongly linked with both higher overall tax burdens and more government spending. In 1965, before the VAT swept across Europe, the average tax burden for advanced European economies (the EU-15) was 27.7 percent of economic output, versus 24.7 percent of GDP in the United States.

But the Europeans began imposing VATs in the late 1960s, and now the European Union requires all members to have a VAT of at least 15 percent. Good news has not followed. By 2006, the average tax burden for EU-15 nations had climbed to 39.8 percent, versus 28 percent in the United States.

What happened to President Obama's laser-focus on jobs?

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