For those who advocate a VAT . . .

Byline: | Category: Taxes & Spending | Posted at: Monday, 14 January 2013

For those who advocate a value-added tax . . . beware the unintended consequences.

As an American servicemen stationed overseas, I am exempt from the host-nation’s taxes.  (Yes, that makes Germany’s $8 dollar-a-gallon gasoline much more palatable than it is for the Germans.)

This evening I was in an antique shop about to make a purchase and I asked if they would remove the tax from the price, when the proprietor told me that antiques are not subject to a VAT.

It dawned on me what should have been obvious.  Re-sellers of finished products add no value to the item for sale, and hence, there is no value-added tax.  Duh.  The second thing that dawned on me was that under a VAT regime, used items retain quite a bit of value, while new items have to be that much better to garner a sale.  In other words, a VAT is a sure way to reduce the production of new manufactures, because while there is a tax on the new, the used item that it replaces isn’t subject to a tax.

Here in Germany the VAT is 19.5 percent!!!  Yes, anything new is marked up by a fifth by the government.  Now imagine how much more expensive a car would be in America under such a confiscatory tax arrangement.  Do you think that used car sales would spike under such circumstances?  And that consequently new car sales might fall?  Of course they would.  Duh.

Beware the unintended consequences:  a VAT may raise tax rates for the government, but it will also reduce the manufacture of new items.  And that means fewer American jobs.

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One Response to “For those who advocate a VAT . . .”

  1. SDN Says:

    Do you think that used car sales would spike under such circumstances? And that consequently new car sales might fall?

    Not as long as you have a Cash For Clunkers to get rid of the used cars…. or just an EPA to mandate things like ethanol based fuel mixtures that the older car engines won’t handle without ruining them.