Dear Mr. Berko: A friend with impressive political connections in Washington believes that the next president will ask Congress for a value-added tax to support our welfare and entitlement programs. He says it's the only way the country could pay for these programs. What are your thoughts?
- FL, Springfield, Ill.
Dear FL: He's right! A significant portion of the $3.9 trillion budget for this fiscal year derives from our tax dollars. However, this budget is as much about spending as it is about raising revenues from voters who generously fund Washington's numerous programs through payroll and income taxes. At the close of every fiscal year, because Congress congenitally spends more than it takes in, "we the people" accept deficits of hundreds of billions of dollars as the normal cost of government business. The nonpartisan Government Accountability Office noted that last year's entitlement programs (Medicare, Medicaid and the earned income tax credit) had more than $124 billion of waste and fraud. Former Defense Secretary Chuck Hagel noted that the $565 billion Pentagon budget in 2014 contained over $67 billion of waste and fraud. That's the big stuff to which we add $11 billion here, $3 billion there and hundreds of millions elsewhere. These time-honored abuses are in the genetic coding of those who run the government. It's normal; it's what we expect of folks who turn the wheels in Washington. And as our bureaucracy grows, so do the waste and fraud. There's looting in almost every nook and cranny of our federal bureaucracy. Our state governments are no different, and all of this abuse, which raises the annual deficits, has been financed by the sale of government bonds. However, the Europeans, using a value-added tax, pay for their waste and fraud more efficiently than we do. So maybe it's time for us to swallow the bullet.
According to a recently completed report by the mega accounting firm Ernst & Young, VATs are spreading around the world as a painless source of growing government revenues. A VAT is basically a turbocharged national sales tax paid on goods and services during each stage of production, not just on retail transactions. The U.S. is a rare bird among the industrialized nations because Congress has yet to propose a VAT. But you may be able to hold your breath, because Congress is running out of sources to generate sufficient tax dollars. To support growing entitlements, to support the increasing number of Americans who consume more than they produce and to support established waste and fraud, Congress must find a new and dependable broad-based tax source. It has two choices: a VAT or a "pre-withdrawal tax" on the $22.2 trillion sitting in untaxed retirement accounts. The latter has most congressmen panting and salivating. It was considered in 1994, when Hillary Clinton lobbied Congress to pass a universal health care plan. However, the financial industry put a big kibosh on that tax and will enthusiastically do it again.
So you can bet that a VAT will be on the agenda of our next elected president. A VAT is probably the most efficient revenue raiser known to mankind. A VAT is embedded in the price of a product and rates can be raised gradually; consumers hardly notice it. (Conservative Ronald Reagan once commented that the best taxes are those that the taxpayers can feel and are therefore difficult to raise.) When Congress needs to fill holes in its 2018 budget or increase Medicaid funding, ethanol subsidies, food stamp programs, defense outlays, etc., raising VAT money is as easy as falling off a piece of cake. A hardly noticeable 2.5 percent VAT on an $18 trillion gross domestic product would have eliminated last year's deficit. It's a very effective tax tool because it's a painless way for a government to generate more money to support expanding federal programs. VATs have been popular with the politicians in Europe for decades, and today's average take there is 21.7 percent. Japan instituted a 3 percent VAT in 1989. It has been raised frequently and may be increased to 10 percent next year. It's VAT time, and the sacred cows will soon come home to roost with a vengeance.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Thu, Jun 04, 2015
