Wednesday, February 6, 2013

Scott Walker Floats Sales Tax Hike or Value Added Tax (VAT), most regressive idea yet.

To understand what Scott Walker and other Republican politicians are setting up for the unsuspecting public, check out this reason why a sales tax/VAT is a hot issue for conservatives:
In many developing countries such as India, sales tax/VAT are key revenue sources as high unemployment and low per capita income render other income sources inadequate.
Republicans are gearing up for business friendly lower wages, and continued higher unemployment, a result of manufacturing and trade policies promoted by the Chamber of Commerce. That's the plan.

A proposed hike in the sales tax, to reduce or eliminate state income taxes, are similar to value added taxes, or a consumption tax, proposed by Gov. Bobby Jindal and now other Republican politicians. Gee, I wonder who will benefit most from this change?
Wis Radio Net: According to Wisconsin Department of Administration Secretary Mike Huebsch. “For the first time in, I would say the last 20 years, this is getting much more discussion across the nation. And I think it’s being led by governors like Bobby Jindal in Louisiana who are trying to figure out ways that they can eliminate their income tax. That’s really the motivation here. They want to eliminate the income tax. It’s something Governor Scott Walker “is considering,”

The state sales tax rate is currently 5 percent; Huebsch says adding 8 cents would allow the state to eliminate income taxes. ”If we were just going to eliminate the income tax and raise our sales tax to match that, we would have to raise it somewhere in the neighborhood of about 8 cents. We would have to go to about 13, maybe 13 1/2 cents in our sales tax.” Individual income taxes equaled $7.0 billion in 2012 in Wisconsin.
Here's the key comment: 
Huebsch says there needs to be a discussion about whether to tax consumption or production — sales versus income.
And that’s the rub. What Huebsch is talking about is a value added tax (VAT)/consumption tax.

Depending on what Gov. Scott Walker might be considering, here’s what a value added tax brings to the table that a simple repressively high sales tax hike doesn't:
The seller charges VAT to the buyer, and the seller pays this VAT to the government. If, however, the purchaser is not an end user, but the goods or services purchased are costs to its business, the tax it has paid for such purchases can be deducted from the tax it charges to its customers. The government only receives the difference; in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain.
So just to repeat, the reason these idea's are gaining any traction is the failure of their policies to produce jobs or increase wages, while still funding their idea of stripped down privatized government.  
In many developing countries such as India, sales tax/VAT are key revenue sources as high unemployment and low per capita income render other income sources inadequate. 

2 comments:

Gareth said...

Most countries which have VAT taxes use them to subsidize universal healthcare, education and old age pensions. The provision of these services somewhat tempers the burden on the poor and working classes of this regressive taxation.

Using a VAT or sales tax in Wisconsin to replace the income tax will merely be a massive transfer of income from the bottom to the top of the economic hierarchy, an act of economic looting or class war.

Democurmudgeon said...

An excellent point I had not considered. In fact that's why taxes are so high in Europe. Thanks.