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Source link: http://archive.mises.org/12543/the-value-added-tax-is-not-the-answer/

The Value-Added Tax Is Not the Answer

April 23, 2010 by

The VAT allows the government to extract many more funds from the public — to bring about higher prices, lower production, and lower incomes — and yet totally escape the blame, which can easily be loaded on business, unions, or the consumer. FULL ARTICLE by Murray N. Rothbard

{ 46 comments }

Alex April 23, 2010 at 11:13 am

We have a VAT here in Canada; it’s called the GST (goods and services tax). The federal government was going to hide it in the final price of items, but there was sufficient pushback that the government agreed that it would be added on separately at the cash register along with the provincial sales tax. So the VAT in Canada is very visible and, of course, hated along with all other taxes. Since it is visible the government, rather than increasing it from its original 7%, has reduced it to 5%. As a consequence when (not if) the U.S. Vat is introduced people must demand that it be glaringly visible.

Joe April 23, 2010 at 1:21 pm

Alex, I like Canada and the people. I have a very good friend in Nova Scotia and we talk about taxes from time to time. He always laughs at me when I said the Canadians need to have a revolution. I say that because of all the taxes and universal health care. I have to admit I didn’t think we would ever have Obama Care but it happened. Now all we need to do is win back the congress and elect a new president in 2012. When that happens the Obama Care can go away and we can use market solutions for health care. As for the VAT I seriously doubt we will ever go to that in the USA. If they try there will be a revolution. Give me Liberty or give me death. I feel sorry for the Canadians now because they will have no place to go for health care. Anyway, maybe we can get enough people who weren’t brain washed in our public school system to vote the socialists out.

Eric April 23, 2010 at 1:43 pm

The government avoids revolution by slowly ratcheting up the take. That way each younger generation only sees a small loss in freedom since they were born. The older generation is unlikely to rebel, especially how they want to get their social security checks.

Eric April 23, 2010 at 12:08 pm

Another problem with this is that it will hit the elderly just as they retire. Most retirees have been paying on income taxes with the assumption that when they do retire, they will no longer have to pay these taxes and so can live on less savings. If the government does do a VAT tax, and of the hidden kind, then it can jack up the VAT percentage while it pretends to lower taxes on the income side. Then the elderly will really feel the punch – both coming and going.

Here in CA the tax rate on sales is now just shy of 10% whereas when I first moved here it was 5%. I remember that because I worked retail sales back then and could compute the tax in my head. It seems they’ve returned to that now, only it’s double.

As Rothbard has said, the best way to comprehend what the government does is to think of them as a criminal gang. Then everything falls in to place easily.

P.M.Lawrence April 26, 2010 at 3:01 am

That problem with people retiring just as a GST/VAT comes in was why the Australian government that did it provided some extra benefits for that group as part of the transition – but only after pressure, and they still handled the transition badly. Of course, by now those benefits have washed out but not all those people have died and those now retiring still didn’t get a good pattern of pre-implementation saving/post-implementation returns, just more time to brace themselves.

Steve April 23, 2010 at 1:06 pm

The government ship is sinking. So, do they rid themselves of all the garbage? Nope, the captain and crew find more ways and reasons to throw the passengers overboard.

Allen Weingarten April 23, 2010 at 3:02 pm

The article, although cogent, does not get to the fundamentals. If the approach is anarchist, there ought be no taxes at all. On the other hand, if a government is required, the issue is what is an appropriate tax. I take for granted that most of the tax collected is uncalled for, immoral, unconstitutional, and destructive. But that does not address the apt approach for taxation.

Since I am not an anarchist, I believe it necessary to fund government. Here, there should be a ‘head tax’, where each citizen pays the same amount (which is akin to belonging to an organization, with a membership fee). It is of course possible that some could not afford that tax, although it should be small. That however, could be taken care of by a charitable loan.

I know that it may be infeasible to get the public to agree to a head tax. Then the fallback, for purposes of expedience is a consumption tax, where all pay the same percentage for products consumed. Others have advocated a fair tax.

My only point is that it is incomplete to denounce the VAT, without considering the alternatives, and explaining how to evaluate them.

Zach Bibeault April 23, 2010 at 5:09 pm

Allen, keep in mind Rothbard had plenty of articles — and sections in books — addressing the ethical issues tied to all issues of taxation. He likely assumed his readers know that when he wrote this piece. And for those that didn’t, it still works as a standalone piece critiquing the VAT. But he wouldn’t have “[considered] the alternatives” for VAT taxation because he opposed all taxation and rightly knew that gradualism as a strategy for liberty was perpetuity in practice.

Allen Weingarten April 24, 2010 at 6:41 am

Zach, you say he “opposed all taxation”, and the VAT is a form of taxation. So all he needed to write was that: since the VAT is taxation, and there should be no taxation “The Value-Added Tax Is Not the Answer”.

BioTube April 24, 2010 at 7:35 pm

You’re missing the point of the article – Rothbard was going into detail of why the VAT is worse than the standard sales tax.

Allen Weingarten April 25, 2010 at 6:33 am

Thank you, I stand corrected.

Allen Weingarten April 25, 2010 at 8:24 am

However, since the title was “The Value-Added Tax Is Not the Answer” and since Rothbard’s conclusion was to defeat the VAT, it was unclear to me that the point of his article was that it was worse than the sales tax.

Cybertarian April 24, 2010 at 7:49 am

“Since I am not an anarchist, I believe it necessary to fund government”

And you are not alone, a lot of other people think like you. So I guess there is enough of you guys to voluntarily donate some of your money to the government in order to fund it, just like a charity. In a libertarian society, you are completely free to give all the money you want to the government, nobody forces you not to.

Michael A. Clem April 26, 2010 at 1:49 pm

No, no, no! They have to force the rest of us to pay taxes, too, otherwise people might “benefit” from government regulation and control for free! Government: the ultimate negative externality.

Steve April 24, 2010 at 9:42 am

“My only point is that it is incomplete to denounce the VAT, without considering the alternatives, and explaining how to evaluate them.”

Here are the “alternatives” the government is already doing: income tax, inheritance tax, property tax, capital gains tax, consumption tax, sales tax, tariffs, not to mention the indirect tax of inflation. Even if you believe we need government, we already do have too many taxes, don’t you think? The problem the government and citizens need to confront is not how can we further tax, but where do we reduce the size and scope of government. Otherwise, the state can tax indefinitely, for whatever reason, because it’s necessary to “fund government” (that is until the system implodes).

Allen Weingarten April 25, 2010 at 6:46 am

Yes, we agree that taxes are excessive. I had written that “most of the tax collected is uncalled for, immoral, unconstitutional, and destructive.” We also agree that we need to reduce the size and scope of government. To do so, it is necessary to provide an operational alternative, which is not achieved by saying that the problem will not arise in an anarchist society.

Steve April 25, 2010 at 3:28 pm

It was considering adding the VAT as another exploitative tax to the already overburdened tax system, which was blasted. I think it was implicit in the article that the “operational alternative” was to cut government as much as possible. Even to the point when the separation of powers, we recognize as an important philosophy guiding the construction of the constitution, is realized at the individual level. At this point there is no government to fund with taxes, and society truly becomes “pay as you go.”

If government is needed the operational strategy might be to eliminate taxes in proportion to the amount saved from elimination of government structures.

Just a thought though.

Allen Weingarten April 25, 2010 at 3:46 pm

Steve, if the purpose of the article was to not add another tax, it was stating the obvious. Surely the aim is to reduce taxation as much as is feasible. I further agree with eliminating any government structure that is not necessary for national survival.

However, that does not provide the operational guide for minimal intervention. Note that if a sheriff were needed to protect a community from criminals, it would be necessary to determine how much to support him, without allowing him to become our enemy.

Steve April 26, 2010 at 8:49 pm

I don’t think it’s as obvious as you say (at least to many regular folk), as the political debate always centers on taxation instead of eliminating government (except limited lip service showing how impractical it would be). The debate will always surround as you say, “the operational guide for minimal intervention” with the requirements for “minimal intervention” dictated by the state. Which means discussion of how, who, how much, and what they should tax. I think it’s refreshing to hear a view that has different philosophical underpinnings.

As for your sheriff example, I’m assuming you don’t think it’s possible for the free market to produce such services or stability. You may be right, and how do you get from point A to point B? I’m not sure myself, but from reading some of the material here I lean toward the possibility of it. I also think the specific operational details you’re looking for were not the focus of this article, but he and many others have expounded such theory and details in their other writings.

p.s. Three years ago I didn’t even know what Austrian economics was. I must say I am a novice in this area, and the extent of my knowledge has come from the study of the material on this website, “Principles of Economics” by Menger, “Human Action”, “Economics in One Lesson”, “Democracy: The God that Failed” which are all decidedly Austrian in nature.

P.M.Lawrence April 26, 2010 at 3:21 am

I had a full and complete answer for you, but this site won’t post it (probably because I gave links). If you want, contact me at pml540114 at gmail dot com and I will email it to you.

El Tonno April 24, 2010 at 6:23 am

I laugh. In Europe, 15% VAT is considered “low” and attracts accusations of being an unfair “VAT haven” from neighbouring countries.

I was also reminded of a speech Hillary Clinton gave in Pakistan, as related by Justin Raimondo: (http://original.antiwar.com/justin/2009/11/01/hillarys-ill-will-tour/)

——
“’At the risk of sounding undiplomatic, Pakistan has to have internal investment in your public services and your business opportunities,’ [Hillary Clinton] told the executives. The U.S. government taxes ‘everything that moves and everything that doesn’t, and that’s not what we see in Pakistan.’”
——

Core April 24, 2010 at 7:18 am

This VAT tax talk in the US is making me very very leery…

Now the Fairtax solution I have read about, I really want to see it pass. Revenue neutral and fair. Well, as fair as a tax can be.

I’ve read a lot about it. And it would do the most good as far as putting power back in the peoples hands.

Cybertarian April 24, 2010 at 7:53 am

Letting individuals keep their full payckeck and letting businesses keep their full profits would do the most good as far as putting power back inthe people’s hands.

billwald April 26, 2010 at 1:25 pm

The BIG problem with the VAT or any system based on consumption taxes is that 90% of the people in 80% or so of the net asset curve spend 90% of their annual increase to stay alive every year and the top 5% would not know how to spend 10% of their annual increase if they at it. Thus, without a severe inheritance tax, the economic and political power of the top 5% will increase almost exponentially.

VHarris April 24, 2010 at 2:26 pm

Rothbard misses the big picture. The government is the functional ‘owner’ of all real property and, as Rothbard sets forth in his own ‘lifeboat’ example (http://mises.org/daily/1628), is therefore free to set the conditions of occupation – coerced by threat of eviction from the lifeboat (e.g., death). While a VAT and other forms of government rent-seeking may be fiscal folly, as landowner, the State has the right to exert them.

The State always seizes property rights and never returns them. Eventually only the State has any plausible remaining claim to ownership. Misesian studies would therefore better serve the governed by concentrating on how the State, as landowner, might maximize its own revenues by maximizing the economic well-being of its residents.

VHarris

htran April 24, 2010 at 6:21 pm

What a very authoritarian suggestion.

The State owns the land, and by extension, owns your very life. Good luck pushing that line of thought.

VHarris April 24, 2010 at 7:15 pm

I assert only that the State owns the land. Rothbard asserts, and Austrians affirm, that an owner has an absolute right to specify the conditions of occupancy, including the forcible removal of occupants, even if such removal results in the occupant’s death. (Just as an aside, I have argued here before that occupants in Rothbard’s lifeboat have, at a minimum, a right to life which supersedes a property-owner’s right of forcible removal — but that’s another blog.)

Since the State owns the land, rather than opine that it ought to return ownership rights to the present ‘deed holders,’ Austrian economists would better benefit society by describing an economic system where the State maximizes its interests by allowing occupants to maximize their own interests.

BioTube April 24, 2010 at 7:36 pm

The state’s ownership of the land isn’t valid – it neither homesteaded nor bought it from a rightful owner; its claim is nothing more than usurpation.

VHarris April 24, 2010 at 8:54 pm

Usurpation is irrelevant. The State’s claim on land is now more legitimate than all others — regardless of how obtained.

Steve April 25, 2010 at 3:44 pm

“Austrian economists would better benefit society by describing an economic system where the State maximizes its interests by allowing occupants to maximize their own interests.

I think there is a reason Austrians don’t budge on this point. Maybe I’m wrong here, but the State produces nothing and only provides for its interests through confiscation of others’ productive activities. It then follows that the state can only maximize their interests by maximizing their confiscatory policies. It doesn’t make sense that “occupants” can in any way further their interests by having the fruits of their labor taken without any mutually beneficial exchange taking place. This seems to me to be an irreconcilable difference between the two.

The only way the State can allow the “occupants” to maximize their own interests is to eliminate itself and its artificial hold on all property.

VHarris April 26, 2010 at 12:07 am

There is nothing ‘artificial’ about the hold the State has on property. The State is the de facto landlord of all property within its geographical boundaries. Nor is the State going to eliminate itself.

Because we presently insist on maintaining the pretense of ‘deed holder’ as owner, the way politicians maximize their interests is by buying votes through use of frequently counterproductive zoning.

As perpetual landlord, the State might, for example, ‘rent’ out its property to those who can pay the most by putting it to the most productive use (just as would any rational landowner). If the State systematically auctioned off ‘term-occupation-and-use permits,’ property would generally be put to more productive use.

If politicians individually benefit as their ‘tenants’ benefit, onerous time, place, and manor regulations will gradually drop away.

Surely Austrian economists understand the benefit that accrues to an entire economic system when in-fact owners of real property (I assert it is the State and its Politician-Managers) are able to benefit directly from the price-based letting of property.

Michael A. Clem April 26, 2010 at 1:56 pm

Sorry–this argument makes no sense. The state and its “politician-managers” are guided more strongly by politics and personal interests, not economics and the interests of its “citizens”. Thus they have little rational incentive for maximizing economic value.

Franklin April 25, 2010 at 8:42 pm

“… the STATE own the land…”
“….maximizes ITS interests…”
“… would benefit SOCIETY….”
Mumbo-jumbo, through and through.

What is the measure of a benefit on an artificial entity?
How does an artificial entity own anything?
How can an artificial entity have interests that are maximized?
At the heart, who the hell is this State person to whom I can speak, since (s)he allegedly owns my bar, my burial plot, my bubble gum?
Who precisely is this SOCIETY gal or guy and where exactly does (s)he live and work?
Collectivist claptrap and groupthink. Next I’ll be hearing how the “State” might “feel” about all of this.
So interminably tiresome, muddled, illogical and senseless.

Allen Weingarten April 25, 2010 at 10:08 pm

Franklin, guess who wrote “It is uncontested that in the sphere of human action social entities have real existence. Nobody ventures to deny that nations, states, municipalities, parties, religious communities, are real factors determining the course of human events”

It was Ludwig von Mises, in ‘Human Action’ p. 42.

Peter Surda April 26, 2010 at 8:10 am

However, in the same, he also writes

There is no social collective conceivable which is not operative in the actions of some individuals.

and

A collective whole is a particular aspect of the actions of various individuals and as such a real thing determining the course of events.

I would like to add that as a corollary, there can be no “collective” which is not an aspect of the features of individuals. “The state” or “the society” cannot have needs, interests or own anything which is not at the same time an aspect of the needs, interests or ownership of some of the individuals it comprises of.

VHarris April 26, 2010 at 12:30 am

For discussion purposes, I’ll accept Lew Rockwell’s proposition that the State is little more than a ‘band of thieves writ large.’

Is it your contention that, for this gang, there is no measure of a benefit? That it cannot ‘own’ anything? That it cannot have its interests maximized? That it has no one with whom you can speak?

You might be confusing human organization with legal fiction.

Try not paying taxes. It’s a sure way to experience how the ‘real’ organization, with genuine ownership of that property, ‘feels’ about nonpayment.

Michael A. Clem April 26, 2010 at 1:58 pm

No doubt, the coercion of the state is real enough, but as we’ve tried to make clear to you, that does not grant the state and its interests with any moral legitimacy.

VHarris April 27, 2010 at 12:21 pm

My contention is that the State is the most legitimate owner of all property within its geographical boundaries. The State has openly claimed and enforced its ownership rights (e.g., collecting rent [taxes] and controlling use) for so long that there is no one who can now make a stronger claim. Since you seem to dispute this, please explain WHO has a stronger claim — and how it was obtained.

If Misesians are unable to identify a more legitimate land owner than the State, they ought to quit carping and cede the point.

Michael A. Clem April 27, 2010 at 12:41 pm

Coercion doesn’t make it legitimate, get it? It’s a simple counterpoint. It totally invalidates your argument about government control, without going any farther on the issue.
However, if you’re really concerned about who has a legitimate claim, Murray Rothbard has gone into some detail about the process of identifying the legitimate owner, or, if not possible, how property can be abandoned and homesteaded, so that it does have a legitimate owner.

VHarris April 27, 2010 at 1:05 pm

Legitimate owners properly use coercion to enforce property rights. Such use doesn’t delegitimize ownership. If I buy real property, it is on the condition that I pay taxes and abide land-use regulations. How can I then assert the ‘right’ to not pay taxes? Or acquire the ‘right’ to not abide land-use regulations? The fact is that the State ‘owns’ these rights. Simply by acquiring ‘title’ to the land, I am not able to usurp them. Show otherwise.

Michael A. Clem April 28, 2010 at 12:49 pm

Legitimate owners properly use defensive or retaliatory force for the protection of rights. Gaining property through an initiation of force doesn’t grant them legitimate property rights, no matter how many times afterwards they only use defensive or retaliatory force.
Sorry, I would have responded directly, but there seems to be a limit to how deep the nested replies will go.

VHarris April 30, 2010 at 12:51 pm

All land was taken by force at one time or another. Now in possession of the taker, his successors or assigns, we can only deem him the rightful owner because no one else has a more legitimate claim. Short of proving legitimate transfer of land back to the most recent homesteading, the next best solution is to have the strongest present claim — which the State does.

Michael A. Clem April 30, 2010 at 1:43 pm

Merely repeating your assertions does nothing to strengthen your argument. Nor does it counter my argument. If anything, you’re supporting my argument by saying that all land was taken by force at one time or another. Admittedly, that might be a bit of a stretch, an unverified absolute, but I can agree that most land was taken by force. Somehow, you claim that legitimate property titles can be made from illegitimate acquisitions, but you forget to include how this mysterious alchemy occurs. The passage of time? No one else may have a stronger claim, but then, no one else has a weaker claim either. If no one is known to have a legitimate claim, then the only just thing to do is open up the property for homesteading. Again, Rothbard has covered this in some detail.
There is another argument that could have been made against your assertions. You assume government is a legitimate organization, and as such, can have a legitimate claim on property. But if the organization itself is illegitimate, then it can have no legitimate claims on property. If government is an organization that claims a monopoly on the use of force, and is supported by involuntary taxation, then both of those points make it an illegitimate (and unjust) organization. Thus, government can have no legitimate claim on property.

Guard April 26, 2010 at 3:52 am

Yes, it is in fact mumbo jumbo. The ancients from the beginning of civilization recognized the state as, to a large extent an independent spiritual entity that co-opted the will of human beings to its service. The state is now and has always been a “god”. The reason why politics and religion are taboo subjects for discussion is that politics IS religion, with irrational belief systems held on faith just like any religious system.
Modern sociologists have recognized that the state acts like a living thing, but refuse to face the obvious: that it IS a living thing.
Until humans realize there is a second set of players on this earth, the spiritual realm, we will get nowhere.

billwald April 26, 2010 at 1:15 pm

” . . . and yet totally escape the blame, which can easily be loaded on business, unions, or the consumer . . . .”

Then it would make it easier for Libertarians to continue to blame the unions.

Bfrombigd May 2, 2010 at 6:34 pm

Econoclasts by Brian Domitrovic, this is the game plan that has proven time and time again to work for all of U.S. Let U.S. start to return to prosperity once again.

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