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Livingston: Value Added Taxes

07/19/10 5:55PM By Judy Livingston
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(HOST)  As a news junkie, commentator Judy Livingston is worried about the state of our country's finances, both federal and local.

(LIVINGSTON)  Let's face it; we don't have the money we need to support what we spend - whether to cover ongoing programs; debts brought on by those programs; retirement benefits for government employees; and human services, exacerbated by the economy. Our plight is further impacted by lack of revenues, caused by joblessness and, well, people just not spending.

Politicians are beating the bushes, looking for new sources of tax dollars. So it's not surprising to note the current discussion in Washington around the so-called "new" concept of a VAT - aka, value added tax. The VAT has supported the UK for many years - at a healthy 17% .

Vats are really consumption taxes by a different name. The idea is to apply a small tax to every stage of the development of a product. For instance, a log is cut in Vermont and taxed at a small percent when sold to a lumber mill. The resulting boards are taxed at the same small percent when sold to a furniture manufacturer, and then again when sold to a retailer. The consumer pays the cost of goods plus the aggregated taxes embedded in the product. The actual tax itself starts low and progresses with the costs, so the resulting total tax on the product could be about 6 or 7%.

As a former legislator, it's déjà vu. About 10 years ago, several of us proposed this very tax for Vermont. The concept, I think, made sense for our popular tourist state. We residents would pay, of course, and so would everyone who passes through: tourists, shoppers - visitors of all kinds. In other words, the state would enjoy the revenues from out-of-state travelers, and not just from Vermonters. You might reason also, that visitors often don't question sales taxes, especially since most come from higher-taxed states. An arguement can be made that visitors add to the strain on roads and services as they also benefit our revenues.

We were proposing a very low one half of one percent tax on everything - including food - with a safety net rebate for low income residents. The opposition argued the possible negative effect on retail sales and a perceived bias against tourism. Our response was that the VAT would replace the state-wide property tax.  If businesses no longer had the expense of a property tax, cost of goods for everybody - including visitors - would then be drastically reduced.

Now the federal government has suddenly re-discovered this bright idea. The major difference between plans is -  ours would eliminate a burdensome tax while theirs would add to the pile.

There are three forms of taxation: what you buy (consumption), what you own (property) or what you make (income). If you ask a Vermonter which form of taxation they prefer, they invariably respond, "broad-based consumption" - a little bit at a time. Well the VAT is exactly that.
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