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Value-Added Tax: A Non-Tax Tax Increase

One President Obama's many campaign promises was that he wouldn't raise taxes on the middle class.  So how can he get around this?  A value-added tax (VAT) of course!  A VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.  It's the perfect non-tax tax increase.  The problem, of course, are the huge costs that will be passed on to consumers and businesses.  The VAT is, arguably, a way to raise money for government, but will put American's out of jobs and won't raise money.

Speaker Pelosi let this curse word slip from her mouth the other day in an interview on The Charlie Rose Show.

This might be one of the biggest job killers America would ever face.  Here's an example of how the VAT would work on an automobile.

There are thousands of parts in an automobile that come from many different manufacturers.  From bolts, sheet metal, paint, leather, plastic, etc., each of these products would have a VAT that the automobile manufacturer would have to pay.  To adjust for these cost increases, the automobile manufacturer will have to raise the cost of their product to the consumer in order to make up their operating margin and remain profitable.  When the prices are raised, which many believe will be around an increase of 20%, consumers are going to buy the cheaper product.  When the automobile manufacturer's sales start to slump, what are they going to do to make up for the loss of sales?

They're going to shutdown their plants in the United States and build cars in a country without a VAT.  So what about all of those American jobs that will be lost?  They can blame the Democrats in Congress, where their liberalism always generates the exact opposite of its stated intent (Quinn's First Law).

Pelosi argues this will level the playing field for America against foreign manufacturers because healthcare and pension aren't included in the cost of goods because governments provide those services.  This would be an absolute disaster and would severely impact the economy.  So Obama is keeping his campaign promise so far, but not really.  Behind the smoke, it's a tax increase on all of America.

Justin Credible is a contributing editor for Habledash.

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