No European Idea Too Extreme for Obama

EurObama

Matt Welch
Reason.com
April 25, 2010

With the stunning emergence of the consumption-based Value Added Tax (VAT) as a legitimate public policy option, the Obama administration has now all but made it official: There is no European economic idea too extreme for 21st century America. Even if the Europeans themselves are largely headed in the opposite direction.

VAT, first rolled out in 1950s France, is a sales tax on everything that every person or entity buys within a country, with exceptions or reductions carved out for things like food, newspapers, or various links along the industrial supply chain.

Compared to the H&R Block subsidy program that is the US tax code, the VAT is a straightforward way for governments to skim 20% or so off the top of every transaction. By penalizing consumption and not earnings, it encourages savings and resists gaming by well-connected special interests. In an ideal world, you could enact a VAT while slashing America’s corporate income tax rate, which is the globe’s second-highest.

But as the last 18 months of federal misgovernance has aptly demonstrated, we do not live in anything like an ideal world.

The only reason VAT is even on the table right now is that bureaucrats like VAT enthusiast Nancy Pelosi have an appetite for spending that far outpaces Americans’ willingness to cough up their hard-earned dough. Every statehouse and city council across the land is literally out of money, and turning to the only people who can print the stuff: Washington.

The federal government spent $3.5 trillion last year while taking in just $2.1 trillion, producing a deficit-to-Gross Domestic Product ratio of 10%, a level not seen since World War II. By contrast, the European Union requires member countries to keep deficits at 3% of GDP. If America was in Europe, we’d be Greece.

What’s worse for us is that we’ve pretty much given up trying to address the root problem, which is the decade long spending binge initiated by George W. Bush and then tripled down on by Barack Obama. The VAT isn’t a way to streamline a complicated tax code; it’s a new spigot to flood money into the pockets of teachers who can’t be fired, and securities regulators who can’t get enough porn.

The grand irony here is that the very continent we’re scrambling to emulate has been moving aggressively in the opposite direction on taxes and economic policy.

While the US keeps corporate taxes frozen near 40%, EU countries have slashed them down to an average of around 25%. Top marginal income tax rates, which in the US are 35%, are under 25% all across the former East Bloc.

As the share of government spending in health care has been steadily increasing in the US, it has been inching downward in Europe. While first Bush and then Obama pushed through massive new public entitlements, governments from Stockholm to Rome have been grappling with real private reform.

Though conservatives especially like to sneer at the democratic socialism of Old Europe, it is precisely those cheese-eaters in France and Vikings up north who have been leading the world in privatization these last two decades, selling off everything from airports to sewage companies.

It was hardly an accident that, in the midst of Washington’s partial nationalization of Detroit automakers, Swedish Enterprise Minister Maud Olofsson announced “The Swedish state is not prepared to own car factories.” With this week’s news that General Motors is “paying back” one set of Troubled Asset Relief Program loans from another pile of TARP money, we can see why Europeans have a lot to teach us about separation of industry and state.

Where Republicans look across the Atlantic and see soft socialists worth avoiding, Democrats see enlightened progressives worth emulating. And it does not matter how little reality conforms to either fantasy.

So now the federal government is pushing to ape Germany and France in paying individuals far-above-market prices for selling their excess solar or wind power back to the electricity grid. The only problem? Those countries are running, not walking, away from those unaffordable programs.

The same dynamic is at play with labor relations. President Obama is on record pushing organized labor’s dream policy of “card check,” which would drastically bump up private sector unionism after decades of steady decline, and he has gone so far as appoint to his bipartisan “deficit commission” the notorious labor honcho Andy Stern.

Meanwhile Germany, which has the tightest labor-management-government relations in the EU, has been aggressively loosening, not tightening, workplace rules.

The fact that America’s most influential public-sector union leader is within a thousand miles of a deficit commission, let alone one that is floating the idea of an American VAT, tells you all you need to know about the relationship between any new consumption tax and fiscal responsibility. Which is to say, there isn’t any.

The solution to unsustainable budget deficits and precarious debt levels remains the same as when Barack Obama took office: Stop spending so much damned money. Until government gets serious about that, trial balloons for gobbling ever-more tax money deserve nothing more than a good swat.

And we’ll be left with a massive exodus of business geniuses to that bastion of capitalism — France.

Well Matt?

This is mostly bullshit, a parody of Europe and European society from somebody who probably hasn't been here.

TexasBlue wrote:VAT, first rolled out in 1950s France, is a sales tax on everything that every person or entity buys within a country,

It is a tax on an end product, not on everything. I believe I gave an example of this when a few people on SP didn't understand what it was and it went something like this.

Imagine I am a sheep farmer, I sell wool by the tonne. VAT is charged on that but if the purchaser is buying it in order to make cloth, they can claim back the VAT. They then sell that cloth with VAT added but a person buying that can claim that VAT back because they are using it to make clothes. This end product is sold with VAT. If however anybody uses any of those things as an end product, they cannot claim back the VAT. Somebody who makes clothes for their own family must pay VAT on the cloth because they are not using it to make a sellable item.

VAT is not charged on everything, books, magazines, newspapers, basic food such as bread and milk I think are exempt. Other things have a lower rate of 5%, everyday food but not staple.

TexasBlue wrote:As the share of government spending in health care has been steadily increasing in the US, it has been inching downward in Europe.

That certainly isn't true. Labour has ploughed plenty of money into the NHS in the last 13 years and the Tories have promised not to make cuts to front line services, what that means is, no Doctors, nurses etc will be made redundant. Having worked in a hospital myself, I can see that there is a lot of waste and money being spent in the wrong way.

TexasBlue wrote:Those countries are running, not walking, away from those unaffordable programs.

Well that certainly isn't true. Money is being ploughed into renewable energy. At the end of the day, oil is still a finite resource.

I figured you'd have a word or two. lol

I don't always post stuff i agree on or think is fact, btw. This one is a good example because i was hoping you'd provide commentary.

My question for you though, is, do you folks have another form of income tax there besides this VAT? The reason i ask is that our beloved (and soon to be out of work ) Democrats want to implement this (not all of them). This VAT would be on top of our already intrusive federal tax, states taxes, states sales taxes, state property taxes. Democrats never met a tax they didn't like over here. The more they soak people, the better they say we are.

It's insane that these dumbasses are even talking this the economy is in the sh!tter still. What a good way to get yourself thrown out of office.

We have two taxes that come out of our wages: Income Tax and National Insurance.

The first instance is for day to day running of the country. National Insurance is supposed to go toward paying benefits, including unemployment, incapacity, disability allowance and state pensions.

The equivalent of your state tax and property tax is probably our council tax. This is money that is taken and spent by the local government. It doesn't go to central government. We don't have a separate sales tax, VAT is the only tax we pay on consumer products. And of course we pay a car tax, which is for upkeep of the roads etc. The more economical your car, the lower the tax is. Gas guzzlers get hit pretty hard.

I think that is about it for taxes that the vast majority of people pay.

The_Amber_Spyglass wrote:We have two taxes that come out of our wages: Income Tax and National Insurance.

The first instance is for day to day running of the country. National Insurance is supposed to go toward paying benefits, including unemployment, incapacity, disability allowance and state pensions.

The equivalent of your state tax and property tax is probably our council tax. This is money that is taken and spent by the local government. It doesn't go to central government. We don't have a separate sales tax, VAT is the only tax we pay on consumer products. And of course we pay a car tax, which is for upkeep of the roads etc. The more economical your car, the lower the tax is. Gas guzzlers get hit pretty hard.

I think that is about it for taxes that the vast majority of people pay.

Yeah, some of that makes sense and is necessary. But in addition to all our taxes already, we have have the states each grabbing sales tax. Some have higher taxes than others and tax more things than others. Only 9 states have no state income tax and they rely totally on sales tax and property taxes. Texas was one.

It gets tot he point that from all the taxes put together, people have a hard time making a go of it. Others have it made (like my uncle). Bill O'Reilly said a couple years ago that with all his taxes combined, he pays over 60% of his wages to some form of gov't entity. He said he doesn't mind (since he makes a ton) but he never gets his money's worth. I tend to agree with that because his state has some of the worst roads in the union. NY state has some of the highest taxes in the nation and have nothing to show for it.

Unemployment is paid thru the employer here. They pay a certain amount a month based on what you made and if you lose the job, your benefits are 60% of it.

Disability is paid via Social Security here. My mom had 3 toes removed last July due to medical negligence (she has cancer and is also suing). She qualified for SS Disability. Her payments will go up in Dec when she turns 65 which retirement age for the baby-boomers.

Conservatives here say that if the Dems want a VAT, then abolish the federal income tax. I agree.