October 11, 2009
By Holly Deyo
While Stan and I lived in Australia, taxes were a major headache. Not only were federal taxes for the two countries due 6 months apart, which meant figuring and filing tax returns twice yearly, we had to pay double taxes, both for the US and Australia. Additionally, Australia implemented their form of VAT, the GST – Goods & Services Tax in 2000. So we got to fork over an extra 10% in addition to the double tax liability.
We've read with concern, the present Administration's desire to implement the same thing here. If you read Wikipedia's assessment of VAT, the authors left out important facts they wouldn't know if not experiencing it firsthand. Australians hate the GST due to the added financial burden of an already over-taxed nation.
Australia is governed by a Provisional Tax System. This is extraordinarily unpleasant especially if you enjoyed one anomalous year of great income. Under the provisional tax, not only are you taxed for the current year, but you owe a "provisional tax" for what you might make during the next. This system assumes that if you experienced a better-than-average earning year, it will be that way forever. Never mind if you don't have the $$ to cover the anticipated tax burden – you have to borrow it – even if it puts you in the hole.
Here's an example. Say you usually make $100,000/year, but this year you earned $175,000. Your tax obligation would be 40% or $70,000 for the normal $100,000 + the above-average $75,000 in the current year PLUS an additional 40% "provisional tax" on the extra $75,000 in the amount of $30,000. In total you would pay $100,000 tax on the $175,000 you earned this year - which is total of 57% tax on this year's income.
The Australian provisional tax is charged on the above-average earnings assuming you will make that extra income the following year... so the Australian Government gets your tax payment over a year in advance if you actually earn $175,000 the following year. If you only earn your average amount of $100,000 the following year they refund or give a tax credit to you in the amount of $30,000, which will be applied within about 12-15 months. In the case where they need to give you this credit, they will have used your pre-paid tax interest-free!
Feel taxed to death yet? We did.
VAT Attack
VAT also has an ugly way of creeping up as government gets deeper in debt. Hungary, Denmark and Sweden's VAT is now at 25%. Other countries are somewhat less: UK 15%, Italy 20%, Germany 19%, Canada 5%, Mexico 15%.
With the speed government throws money into bottomless pits like stimulus/TARP/clunkers/save-my-business, entitlements, pork, wars (we support our troops – not the lack of executive planning that results in massive waste when they finance buildings to be reconstructed when the area isn't secured and they're bombed into rubble again, supply our soldiers unarmored Humvees, defective weapons and make them purchase their own decent flak jackets), healthcare and black op projects, you can bet the VAT will have a hefty, escalating price tag. Their waste could finance a small country since they've racked up a $1.4 TRILLION deficit. Consequently government knows how to take that well-trod mile instead of the proffered inch and shove it into their pockets and pet programs.
For states like Colorado, Ohio and Pennsylvania that don't tax food (15 total) or services (most), it adds a whole other tier to tax liability.
VAT is a record-keeping nightmare. Here's one typical example of what Australian delis have to consider daily. Take the ordinary chicken salad sandwich. If the chicken salad contains sliced chicken, it's one amount of VAT. If not, it's another. Multiply this by every item in your store times every product you sell. Heaven forbid if you change the chicken salad's ingredients or the way it's made. It might alter your taxation responsibilities.
Think about products that are more complex like vehicles. Every assemblage attracts a VAT from the engine to doors to computers parts because each stage of production gets to tack on their portion of "added value". Before you blink, the basic car is horribly overpriced.
The person at the end of the VAT food chain becomes, in essence, THE tax man. They are the party responsible for collecting and reporting the VAT. No regard is given to those who came before in completion of the end product and IRS' chores become the business person's. The Dems and some pundits herald the VAT as fair, but those in business and in certain income brackets know otherwise.
Now think about the pages of rules and regs you must consult. It is a dizzying prospect. Take a peek at Australia's VAT rules. For America, it'd probably be more complicated as IRS has managed to amass an astounding amount of tax code. Most companies end up hiring one full-time employee just to keep track daily of the items that attract this tax.
Death by Taxation
"The current top U.S. rate is 35%, which is substantially above the 86-country average of 28.9%. The Obama administration plans to let the U.S. rate jump to 39.6% in 2011, which would be almost 11 points higher than the international average.
"Worse still, the United States has state income taxes with rates up to 10% that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or most, of them do not."1
Moreover, it is unconscionable to even consider adding more taxes while the country slogs its way out of a very deep recession and where 7 million jobs were axed. Government seems to lose sight of the fact that small businesses are responsible for 2 out of every 3 new jobs on the market. Yet Dems want to suck dry this economic life blood.
Government doesn't care that they've simultaneously added more work and expense to your day just to figure what you owe them. All they see is yet another way to shake $$ from your wallet. And they want to bring the VAT to America.... It is an ugly, insidious tax. If people saw all of the dollars fly out of their wallet from of this hidden tax, it would be squashed like a repulsive bug before it could be breathed into existence.
FYI: VAT or GST is the same as a National Sales Tax, but different than a Flat Tax. The former skewers people disproportionately, the later skewers everyone on a level playing field.
1More Evidence on America’s Socialism. Chris Edwards, Cato Institute, Sept. 16, 2009, www.cato-at-liberty.org/2009/09/16/more-evidence-on-americas-socialism/.
http://standeyo.com/NEWS/09_Economy/091011.vexed.by.VAT.html