Value Added Tax in the States? by Malcolm Berko on Creators.com

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Value Added Tax in the States?

Dear Mr. Berko: I'm fed up with a wayward Congress that spends and spends without regard for the terrible damage that will be created by bigger and bigger national debt. I'm so disgusted with Congress that I, and many other people I know, would rather spit in a congressman's face than shake his hand. Most of those 535 "bloviates," as you accurately describe them, are corrupt as hell and because 70 percent of them are lawyers, they know how to hide behind the rules. I'm so sick of these people that my wife and I would seriously consider a move to Canada or Australia — and fortunately, we can afford to make a move. Now Congress is discussing a value added tax, which I do not understand and this could be our last straw. Canada and Australia (even New Zealand) are looking a lot better every day. Can you please explain how this Value Added Tax will work and how it will increase the cost of the products we use? — S.C., Port Charlotte, Fla.

Dear S.C.: Your attitude reflects the angst of many Americans. However, most Americans do not have the travel means available to you and your spouse. We share the same perceptions of Congress, but my destination will always be America. We may have the worst darn government in the free world, but we have the best worst darn government in the free world and certainly the best worst darn government that money can buy. Still, I wouldn't trade my country for a castle of wealth, privilege and power. And it would do you well to remember that the reason you can afford to move to Canada or Australia is that America gave you the opportunity to earn your success. Be mindful that nothing, no matter how bad something seems, is ever as bad as it looks to be. And certainly nothing, no matter how good something seems, is ever as good as it looks to be. From a distance, it's impossible to see the weeds in a beautiful lawn of green grass.

Congress is seriously considering a value added tax as a tax source to pay for its profligacy.

And most of Europe relies on a VAT as well as enormously high fuel taxes of a few bucks a gallon. Congress is also considering an increase in the federal tax on a gallon of gas, but it will be a few years before the federal tax is as high as it is in Europe. Meanwhile, the following explains how VAT works:

Suppose Tommy Textile sells $5 worth of cotton before the VAT to Tina Tailor to make a shirt. Tina sews the shirt and sells it to SHIRTS R US for $15 before the VAT. Then SHIRTS R US sells the shirt to Sammy for $30 before the VAT.

Now, let's assume that the VAT is 10 percent. The Treasury will collect a bit of tax revenue from each step in the process along the way. However, each business in the chain gets a credit for the tax already paid by the preceding businesses. So when selling the cloth to Tina, Tommy adds a tax of 10 percent or 50 cents to Tina's purchase. So then Tina pays Tommy $5.50; Tommy pays the Treasury 50 cents. Then when Tina sells the shirt to SHIRTS R US for $15, she calculates the VAT at $1.50 and SHIRTS R US pays Tina $16.50. But instead of the full $1.50 going to the Treasury, she gets to subtract the 50 cents that she paid for the fabric and sends $1.00 to the Treasury. And when SHIRTS R US sells the shirt to Sammy for $30, Sammy pays $30 plus a 10 percent VAT or $3.00, or $33 total. Then SHIRTS R US checks to see how much Tommy and Tina paid and sends the Treasury a check for $1.50. So the Treasury receives a total of $3.00 or 10 percent of the final purchase price from three different businesses.

There's almost zero VAT graft or corruption in Europe, but considering the cupidity of Congress members, they will make millions by granting VAT exceptions to favored suppliers and manufacturers.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail 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.