The VAT: coming to America

I know I've been on an ObamaCare kick for the past few months, and I wouldn't blame you if you are tired of it by now.  I wish I could abandon it for some other topic -- any other topic, in fact.  But, alas, I cannot.  Why? Because I see this new law as the greatest single threat to our continued prosperity in my lifetime.

Those on the left think that conservatives are exaggerating the potential impact of this law.  Paul Krugman, no doubt the dumbest Nobel Prize winner in history, was on ABC's "This Week" on Sunday and talked of the the health care reform law as "a minor change", and is certain that it will both be cost and care effective in improving the nation's medical system.  Indeed, this is the talking point for the Democrats, who want to focus on all the "good" things in the law and act as if the economic sleight-of-hand implicit in the law's assumptions are trivial.  Of course, it's all trivial when you are saving the lives of women, children and the infirm (well, most children, anyhow -- we won't mention the baby killing public abortion funding in the law -- I know the left doesn't like to talk about that part).

And herein lies the problem: the left is touting the benefits, while hiding the costs.  And the costs are a killer -- a path to insolvency for this country.  Why?  Because the numbers just don't add up.  As Alan Reynolds of the Cato Institute points out in today's Wall Street Journal, Obama's plan is to tax "the rich" to pay for all this entitlement spending:

President Barack Obama's new health-care legislation aims to raise $210 billion over 10 years to pay for the extensive new entitlements. How? By slapping a 3.8% "Medicare tax" on interest and rental income, dividends and capital gains of couples earning more than $250,000, or singles with more than $200,000.

The president also hopes to raise $364 billion over 10 years from the same taxpayers by raising the top two tax rates to 36%-39.6% from 33%-35%, plus another $105 billion by raising the tax on dividends and capital gains to 20% from 15%, and another $500 billion by capping and phasing out exemptions and deductions.

Add it up and the government is counting on squeezing an extra $1.2 trillion over 10 years from a tiny sliver of taxpayers who already pay more than half of all individual taxes.

It won't work. It never works.

How do we know it won't work?  Because we've tried it before -- in California, in fact.  A burgeoning entitlement and public employee pension system paid for by a tiny percentage of tax payers.  I've written about it before here and here.  California has relied on its top earners to the point where too much of the budget relies on too few tax payers.  And now it has squeezed them to the point that there is no more blood in the rock.  There just isn't any more marginal revenue to gain from raising taxes further, and the "brain drain" to other states has only made the situation worse.

We are now about to embark on a similar experience nationally -- and the numbers won't work any differently there than they have in California.  As Reynolds makes clear, higher marginal tax rates will ultimately lead to LESS revenue, not more.  It's the same lesson that Regan taught us -- that the left refuses to learn: incentives matter:

In short, the belief that higher tax rates on the rich could eventually raise significant sums over the next decade is a dangerous delusion, because it means the already horrific estimates of long-term deficits are seriously understated. The cost of new health-insurance subsidies and Medicaid enrollees are projected to grow by at least 7% a year, which means the cost doubles every decade—to $432 billion a year by 2029, $864 billion by 2039, and more than $1.72 trillion by 2049.

If anyone thinks taxing the rich will cover any significant portion of such expenses, think again.

The federal government has embarked on an unprecedented spending spree, granting new entitlements in the guise of refundable tax credits while drawing false comfort from phantom revenue projections that will never materialize.

At the end of this train comes Nancy Pelosi's big dream: the Value Added Tax (VAT).  The VAT is a tax on goods at every stage of production -- hence the "value added" after each stage (production, assembly, packaging, distribution, etc.)  It's a stealth tax because they don't add it at the cash register -- it's already baked in.  And it's high -- in the UK, for example, that VAT is 17.5%.  And it is in addition to the income, property, capital gains and local sales taxes you pay.

Remember this fact: every nation with a nationalized health care system has at VAT.  It is the only way that the high costs of national health care can be paid for.  Nancy Pelosi is on record as favoring a VAT; she told Charlie Rose in October, 2009:

"Somewhere along the way, a value-added tax plays into this," she said. "Of course, we want to take down the health-care cost, that's one part of it. But in the scheme of things, I think it's fair to look at a value-added tax as well."

The Wall Street Journal has outlined the desires of Pelosi and other Democrats for a VAT on numerous occasions as well:

Mrs. Pelosi is the second prominent Democrat to call for a VAT in recent weeks. John Podesta, an adviser to President Obama and president of the very liberal Center for American Progress, called in September for a "small and more progressive" VAT. Mrs. Pelosi and Mr. Podesta argue a new tax is necessary to address the nation's exploding financial liabilities, as if those liabilities exploded on their own. Of course, VATs always start "small" and get bigger. The bills for the Democratic spending blowout are coming due even sooner than advertised, and the middle class will pay, whatever Mr. Obama's campaign promises. 

So, here's the dirty little secret of ObamaCare: the left knows the numbers are wrong and that the program will lead to massive deficits.  They know it will happen and it is by design: the only way to fully re-make America in Europe's vision is to have a VAT that will support the welfare state.

It is a key part of the leftist game plan.

You heard it here first:  The VAT is coming to America, and sooner than you think.