A U.S. Value-Added-Tax: Suicide not Salvation
Written by Jeff Nielson Wednesday, 10 February 2010 12:35
Articles & Blogs - US Commentary
A decade too late, there is the beginnings of awareness among U.S. politicians that the U.S. is headed for Financial Armageddon. With national default already a foregone conclusion (for anyone capable of simple arithmetic), we can expect these politicians to do what politicians usually do in a crisis: make a bad situation worse. Enter the “Value Added Tax” (VAT).
Fortune magazine, the same den of economic ignorance which recently proclaimed that the gold market was “in a bubble”, has just come out with an even greater display of its fiscal ineptitude: “VAT trap: The inevitable fix for the deficit”. Ironically, the author of this economic insanity actually bills this consumption tax as “the only option we'll have to restore fiscal sanity.”
For the last thirty years, across the Western world, the standards of living for the vast majority of its citizens have been steadily falling – but not for those at the top. The gap between the ultra-rich and everyone else has been increasing exponentially. Given that taxation is essentially the only wealth-distribution mechanism in society, this leads to a logical and inevitable conclusion: our tax systems are hopelessly flawed.
It is much too time-consuming to engage in an entire tax treatise here, given my intention to focus upon one aspect of taxation. For those who would like to gain a better understanding of how and why our tax system is so dysfunctional, you can refer to a previous commentary (“Income Taxation is a Failed System”).
Having a strong and prosperous economy closely parallels Goldilocks' quest in the home of the Three Bears: looking for a balance which is “just right”. Much like Goldilocks shunned both the “hot” porridge, and the “cold” porridge, economies do best when they avoid increasing numbers of people who are too poor or too rich. It is when individual wealth levels are closely grouped that an economy must inevitably be its most prosperous.
Right-wing knuckle-draggers would describe such a concept as “socialism”. This is because the people who like to preach “capitalism” the most, are the same people who know the least about it. In reality, the concept that more-equal incomes and wealth levels leads to greater prosperity is roughly 2,000 years old – or more than 1500 years before the “birth” of socialism.
Greek philosopher, Plutarch, wrote nearly two thousand years ago that “an imbalance between rich and poor is the oldest and most fatal ailment of all republics”. In other words, what was “old news” 2,000 years ago would be a complete “revelation” to 90% of all modern “economists”, and other so-called “experts”.
In fact, wealth egalitarianism is at the heart of capitalist theory – not to mention being another illustration of simple arithmetic. This can be demonstrated through the elementary economic concept known as the “marginal propensity to consume” (MPC). While that jargon may sound intimidating, it expresses a simple statistic: the amount of each dollar of income which a person would spend.
With the United States having the world's most consumer-driven economy, this concept is more important to that economy than any other single, economic concept. However, because the optimal policies which this principle dictates are against the interests of the ultra-wealthy, there is no discussion of this subject in the U.S. government, or its academic institutions.
In any and every economy, the larger the “marginal propensity to consume” the greater the “velocity of money”. The “velocity of money” is how many times each dollar is spent, over a given period of time. Obviously, economies with high MPC's and a corresponding, high velocity of money will be stronger and healthier than those economies with low figures for those statistics. This can be illustrated with simple arithmetic.
We'll take one poor person, one middle-class person, and one rich person. The poor person (like all poor people) has a marginal propensity to consume of 100% - that is, poor people can be expected to spend all of every dollar they receive. The middle-class person has a marginal propensity to consume of 50%. Meanwhile, the rich person has a marginal propensity to consume of 10%.
While these numbers are purely hypothetical, the MPC's of the “poor person” and the “rich person” are very close to actual numbers – only the middle-class MPC has been changed, in order to illustrate the principle more clearly.
Armed with only this one piece of information, it is instantly obvious that a government gets more “bang for its buck” by putting any/every dollar of “stimulus” into the hands of poor people (and the middle class) than in the hands of the rich. It also makes it instantly clear that there is zero validity for the mantra of right-wingers: “trickle-down economics”.
The “trickle-down economists” spout the absurd drivel that the best way to “help” an economy is to give all the money to the rich, so that a few pennies will slip from their grasp, and “trickle down” to the masses. Even the name of this doctrine is enough to totally discredit it. When you give money to the poor, it doesn't “trickle down” - it floods out of their hands and into the economy as fast as they receive it.
To demonstrate this, suppose the government has $100 “stimulus” dollars to allocate. If the government gives it all to the poor, 100% of that money (all $100) is instantly spent (and then re-spent by the 3rd party receiving payment). If we give all the money to the middle-class person, $50 is immediately spent (and re-spent). If we give all the money to the wealthy, only $10 dollars actually makes it into the general economy to be spent and re-spent. The vast majority of any and all charity for the wealthy is simply hoarded – benefiting no one.
Of course, in the real world, things are somewhat more complicated. First of all, since we do not live in the “socialist” enclaves which the right-wingers yammer about endlessly, we would never have an economic policy where 100% of the assistance went to the poor. Politics alone makes this impossible – since politicians like to spread-around their spending, in order to “buy” the maximum number of votes. The reality is that the money would be spread among all income and wealth levels.
Next, as the U.S. economy illustrates, we do not want to have “consumer economies” where every dollar is spent as fast as it is received. Savings are desirable – but (returning to the Goldilocks example) moderation is the optimal policy. Give money to the poor, and you get spending, but no savings. Give money to the rich, and you get savings, but no spending. It is only the money put into the hands of the middle-class which produces that “just right” balance between savings and spending.
Again, the right-wingers will argue that we “need” the obscene fortunes being hoarded by the ultra-wealthy. The facts prove otherwise. When Wall Street and the U.S. government were engaged in their bubble-blowing escapades over the last decade, where was the money of the ultra-wealthy?
Was it being invested in new roads and factories? No. It was piled into the derivatives market, the banksters' unregulated quadrillion-dollar casino, where mountains of leveraged debt large enough to dwarf the size of the entire global economy are guaranteed to destroy our financial system when implosion finally occurs.
What about after the (first) 'crash', when the whole world was crying out for stimulus and investment capital? Where was the money of the ultra-wealthy? Was it being used to build new roads, bridges and factories? No it was all hoarded.
In short, history has shown unequivocally that putting money into the hands of the wealthy benefits only the wealthy – and never anyone else. However, that is not the issue for this current commentary, merely the context which is necessary in order to understand the issue.
Given that insolvent economies must come up with additional revenues to postpone disaster, the current issue is what is the best way to raise additional tax dollars. Having already demonstrated that economic health is best-achieved by policies which maximize consumption (or at least come close to that), then the converse is also obviously true: the worst way to raise tax dollars is through a consumption tax, which must reduce and discourage consumption. Thus, it should be no surprise to Americans that a “value added tax” (or consumption tax) is gaining popularity amongst the politicians as the “best” way to raise taxes.
Since our political leaders know absolutely nothing about economics, in their minds, the “best” way to raise taxes is whatever way hides those tax increases to the greatest extent. This is the only reason why consumption taxes now exist in most Western economies, and why it will soon arrive in the U.S.
Increases in income tax are always felt by taxpayers in one “lump” - when their tax return is calculated. This makes income tax a highly visible tax, and thus the perceived pain of those tax increases is always greater. On the other hand, income tax (as badly flawed as it is) is the only major, tax option which can be administered “progressively” (i.e. with those higher up the income-ladder paying proportionately more). In other words, of all the existing forms of taxation, increases in income tax do less harm to an economy than any other form of tax increase.
Raise consumption taxes, and you kill the retail sector (more than 75% of the U.S. economy). Raise property taxes, and you drive another nail into the housing coffin. Raise income taxes, and you make the wealthy unhappy. What is the lesser-of-evils here?
As a further example of just how intellectually-bankrupt is our community of “economists” and “experts”, we can look at Canada's experiences with its own value-added tax: the “GST”. When this tax was brought in, the “economists” and “experts” applauded – like a chorus of well-trained seals. When (nearly twenty years later) large budget surpluses allowed the government to reduce the GST, the same group of brain-dead analysts jeered the move as the “worst” way to reduce taxation for Canadians.
While I suppose we can award these dolts some small marks for “consistency”, the fact that these economic experts had two opportunities to evaluate the extremely simple and obvious implications of a consumption tax – and failed miserably both times – is the ultimate example of dogma over common sense.
As I have written on numerous occasions, the U.S. economy has been doomed by the failed policies of its wealthy 'elites' to an inevitable implosion – of epic proportions. The response of the U.S. government (and both political parties) was to steal over $4 TRILLION from the “trust funds” of social programs, to “wall-paper” over its insolvency by writing “IOU”s to itself (see “U.S. Government Squanders Trust Funds”). This has advanced the date of the U.S.'s national default by at least 20 years.
Now, the U.S. government appears to have found a policy-option which will sabotage this consumer-economy even worse than its other failed policies: kill consumption. While hundreds of thousands of U.S. retail outlets would be shut-down by this policy decision, and millions of jobs eventually lost, we can expect the U.S. propaganda-machine to boast about all the billions it has ripped out of the hands of average Americans (to provide a new revenue source to funnel into Wall Street coffers).
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written by Jeff Nielson, February 21, 2010
I understand the "laissez faire" sentiments you are expressing. However, we must distinguish between MATURE capitalist economies and developing capitalist economies.
In developing economies, most of the principles you expressed apply. COMPETITIVE businesses outperform public entities.
However, in MATURE capitalist economies (like ours), NONE of those principles apply. MATURE capitalist economies are INEVITABLY plagued by monopolies and oligopolies.
In your own analysis, you can replace "public administration" with "oligopoly" or "monopoly" and EVERYTHING you said is equally applicable. Thus, the choice you claim is available (COMPETITIVE businesses vs. government entities) is actually just an illusion.
In reality, the choice we have today is between government: inefficient and politicized - but at least the PEOPLE are the beneficiaries; or oligopoly/monopoly, where the "inefficiency" is the windfall-profits which the oligarchs can steal from society - and ONLY the oligarchs are beneficiaries.
You cannot have government abandon the marketplace - and leave ONLY the sharks, to feed on the minnows. IF we do what Adam Smith told us was necessary (more than two centuries ago): and smash all the oligarchies into little pieces, THEN we can have your conversation again.
Until something is done to vanquish the monopolies/oligopolies (which are an unambiguous "evil" in EVERY capitalist society), government represents the "lesser of evils".
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written by PHOENIX139, February 21, 2010
When people are fully and properly educated, people can confidently and knowingly participate in the Business of creating Wealth. They organize, and carry out their business organization, to create wealth for all those involved in the process.
No Business will succeed if it doesn't attract the attention and financial support (consumption) of The People.
Not so for Public Administrations. Public Administrations will exist in spite of their failures. And to add insult to their public injury, they will 'charge' the public the cost of the administrators mistakes – EVERY TIME.
Taxation is a Public Scourge that should have been thrown into the trash pile of historical mistakes.
There is NOTHING that ANY public administration entity does that cannot be done BETTER by a Business. After all, the public administration entity has NO incentive whatsoever to succeed. If it fails, the public administration entity merely re-organizes itself AT PUBLIC EXPENSE. This process SUBTRACTS wealth from the public, causing more harm than good.
Whereas a Business uses its OWN wealth to create a wealth producing entity than BENEFITS the public at minimum cost to the public. If a Business fails, there will be another to quickly take its place. For in a 'free' society (that is all about 'creating wealth') you will ALWAYS have people who are driven to internally generate new ideas, create new processes, invent new forms of production etc etc etc.
Public adminstration, by its very nature, has NO such drive to succeed since it has NONE of its own wealth 'on the line'.
The point is that public administration has no 'fire' under its backside to succeed. If it fails, the public, through the insult of taxation, will bail it out – EVERY time. 'Ho-hum' say public adminstrators, as they yawn a sleepy, lazy, unsharpened focus and attitude.
But Business HAS that 'fire' under its backside. If that group of people fails, they LOSE the wealth they PERSONALLY invested in their operation. 'Ouch' says these people, and the pain put into their lives is real and inescapable.
The current size and reach of public adminstration into every facet of society is a force of such huge social destruction that it CAN'T be overstated.
Public Administration is TOO BIG ! Public Administration is completely ILLOGICAL !
And it's the DUTY of The People to cut their own public administration down to its logical function.
This can ONLY be done by a people who are first concerned about the quality of their own lives, the lives of their families, and the lives of their neighbors; and secondly, by a people who are aware of and educated in the processes to apply CHANGE to public administration, and are organized to act effectively.
After all, until the People realize that it is THEIR Wealth that's at stake, they will continue to tolerate any and all forces designed to steal, impoverish, control, and manipulate them.
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written by JsJ, February 16, 2010
Interest calcualations were over 20 years, not 40 years. Twenty years of compounded 5% interest on $200 = $530 and change. (40 years = $1400+)
Those unreadable numbers, separated out:
(wealth tax)
$200.00 $204.00 $208.08 $212.24 $216.49 $220.82 $225.23 $229.74 $234.33 $239.02 $243.80 $248.67 $253.65 $258.72 $263.90 $269.17 $274.56 $280.05 $285.65 $291.36 $297.19 $303.13
(capital gains tax)
$200.00 $208.00 $216.32 $224.97 $233.97 $243.33 $253.06 $263.19 $273.71 $284.66 $296.05 $307.89 $320.21 $333.01 $346.34 $360.19 $374.60 $389.58 $405.16 $421.37 $438.22 $455.75
This comments machine doesn't like the TAB key!
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written by JsJ, February 16, 2010
If everything is taxed, I agree, the base would be huge. In order to understand the problem with that, however, you need to look at the value of interest.
Prior to 1933, and subsequent to the legalization of interest (thanks Webster!), the average saver earned about 5% per annum on their savings. Since the U.S. was on a gold standard there was no significant monetary inflation over that time period as a whole (although there were inflationary episodes), and so the realized gain on the interest was a REAL GAIN.
If you invested $200 USD in 1868, then forty years later you could have over $530, and the $330 gain was in the same value dollars as you invested. It was a real gain.
Now, assume that your $200 was taxed yearly as part of your "wealth". Even if the tax was a measly 3% (probably far too low for a society with social welfare or safety nets), that money comes out of your pocket and reduces your compounding. If you gained 5% interest, and they took 3% of your total away, your yearly compounded values for 20 years would be the following:
$200.00$204.00$208.08$212.24$216.49$220.82$225.23$229.74$234.33$239.02$243.80$248.67$253.65$258.72$263.90$269.17$274.56$280.05$285.65$291.36$297.19$303.13
Compare that to twenty years returns on your $200 with a capital gains tax of 20%, i.e., they only tax you on your interest (not your principal) but they tax you at 20% of that interest gain:
$200.00$208.00$216.32$224.97$233.97$243.33$253.06$263.19$273.71$284.66$296.05$307.89$320.21$333.01$346.34$360.19$374.60$389.58$405.16$421.37$438.22$455.75
That is why taxing principal is so nasty. It literally punishes you for accumulation. Not to mention 3% is a pretty low estimate for tax in systems with socialized ANYTHING, seeing as how the cost of a subsidized thing always goes up and up and up.
That is why wealth tax -- punishing people for accumulating -- has perverse consequences. The one-time wealth tax of a "death tax" could be potentially useful for redistribution, but only to the extent that there were no loopholes for the very wealthy to use to escape it.
Taxing, and therefore punishing, savings and accumulation is a Bad Idea(tm).
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written by Jeff Nielson, February 15, 2010
People have no idea what a HUGE percentage of our economic activity is geared toward tax avoidance. Who cares if your investments are taxed (in single digits) when there is NO capital gains tax?
No need to worry about "tax brackets" - because there's no income tax. And the wealthy can even have that "flat tax" they've been whining about FOREVER.
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written by JsJ, February 15, 2010
Perhaps I misunderstood you. I thought you were advocating taxing investments held, as in a stock portfolio. If such investments were not to be taxed as a part of "wealth", then your tax could be very useful. It would not, however, be very effective in attaining your goal of equitable redistribution.
Fortunately or unfortunately, the majority of wealth owned by the top 1% is invested today -- the problem is that it is often malinvested in speculative or derivative financial interests. Yes, you could tax large homes and expensive cars as "wealth", and this would essentially be taxing consumption, albeit it would be a tax on the consumption of expensive items by persons with wealth. It would not be a tax on wealth itself.
If ownership in a business or in some sort of physical or intellectual capital was not taxed there would be very little to redistribute. Property taxes are already paid on large, expensive homes, and sales tax is already paid on huge, wasteful yachts. Taxing excessive consumption would be, I think, a fantastic thing -- but I don't see how it would be an effective means of redistribution. (As I said before, I'm not pro-redistribution myself, but I am trying to clarify based on a framework wherein that is a goal and responsibility of the government.)
Jesus Christ is reported to have said, "The poor will always be with you". The flip side of that coin is that the wealthy will always be with us as well. What has enabled the gap to grow in recent years is the proliferation of "innovative" financial fraud, wherein favored and elite individuals can freely rob from society at will. The difference between a Rockefeller of the 19th century and the Rockefellers today is that in the 19th century Rockefeller actually *did* something... today their family trust doesn't so much invest as speculate, and doesn't so much even speculate as openly gamble on a given outcome.
The source of the modern wealth disparity is, in a word, "fraud", and ending the fraud will do a great deal towards ending the imbalance. The government shouldn't see its role as an active one in the redistribution, but a passive one, in that providing a fair and transparent market where success is justly rewarded and failure justly punished is the limit of what they can and should do. To do otherwise is to impoverish us all, and that is the current woeful situation.
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written by Jeff Nielson, February 15, 2010
Conversely, if the ultra-wealthy KNOW that their wealth will be taxed (regularly), this does NOT mean that their only option is to spend all that money through "consumption". Instead, having their wealth taxed will encourage them to INVEST their money productively - rather than HIDING trillions in their art collections, car collections, numerous mansions, etc.
THAT is the sort of consumption which would be discouraged - while investing in new factories and other wealth-PRODUCING ventures would now be a much higher priority to the wealthy. This is because if they did not produce an acceptable rate of return on their wealth that it would slowly shrink over time.
What our mature, capitalist economies need is to MOTIVATE the ultra-wealthy to DEPLOY their fortunes in a constructive manner. A wealth tax is the ONLY POSSIBLE way to accomplish this.
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written by JsJ, February 15, 2010
I read what you linked, and I believe that what you said has a lot of validity. I will accept that "fairness" can be described objectively, and that we are objectively failing, if the following is stipulated: 1) that income tax is the only means of addressing wealth disparity, and 2) that it is the government's responsibility to address wealth disparity.
While it is a social good to have equitable distribution of wealth, allowing a majority-rule government the explicit power of redistribution is equivalent to allowing the foxes to vote for/against the chickens vis-a-vis egg redistribution. It is folly. I fully support the premise (indeed, historical fact) that a more equal society is a more stable society, but if elected officials are given the task of redistribution I have no doubt that they and their friends will be the biggest beneficiaries. This falls under the "benign despot" category -- it would be ideal if government could carry out this function, but they simply cannot be trusted with it. Therefore, it is a Bad Idea(tm) to give the government this power, mandate and responsibility.
I agree that taxing wealth as a ONE-TIME measure is a supremely good idea. Yearly or other periodic assessments would only incentivize consumption, however, because of the old axiom: tax what you want to discourage, subsidize what you want to encourage. By taxing accumulation you do discourage the building of wealth, because those on the bottom of the pyramid will have even *less* incentive to capitalize rather than consume their excess. They can either enjoy 100% of their money, or they can invest 91% while the government takes the other 9%. If the time preference concept of money yields a "human average" of 6% return for delayed gratification, then any tax rate equal to or above 6% will rob savers over time and thoroughly discourage such investment. At a minimum it will encourage people to increase consumption just before the levy, in effect eating their bread before the government takes a slice. I just don't think it will work if it is a periodic assessment.
So, to recap: although I acknowledge wealth disparity as a societal problem, I do not wish the government to address it with periodic or episodic levies. I believe a "wealth tax" would discourage investment, and although the income tax is patently unfair at least it allows theoretically for some productive investment and accumulation at a percentage rate lower than the tax percentage.
Those are my thoughts.
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written by Jeff Nielson, February 15, 2010
As a MINIMUM, tax fairness requires a tax system where the MAJORITY do not continually fall farther and farther behind a wealthy minority.
Furthermore, there IS a means of altering our tax system which is GUARANTEED to produce that result - as I described in my previous piece:
"Income Taxation is a Failed System"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=153:income-taxation-is-a-failed-system&catid=46:canadian-commentary&Itemid=134
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written by JsJ, February 15, 2010
Fairness depends on 1) perspective and 2) value judgment. That's true from little league baseball all the way up to billion dollar backstops for AIG. I, for one, feel that it was unfair for the government to force me (and other taxpayers) to pay Goldman-Sachs $10B since I (we) never signed any contracts or agreements along those lines, but Hank Paulson felt it was fair because I, as an American, benefited from the economic innovation and "goldilocks economy" that resulted from such innovations. Perspective, and value judgment. Therefore, not arithmetic.
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written by Jeff Nielson, February 14, 2010
The tax system is an issue I've studied for over a quarter of a century (not to mention four years of economics and two years of corporate tax law).
Unlike many issues, "tax fairness" and "tax efficiency" are not matters of ideology. They are simply questions of ARITHMETIC - and the math is very straightforward. People can have opinions about many things, but you can't have an "opinion" about arithmetic - either you "get the answer" or you need to pull out your calculator again.
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written by Jeff Nielson, February 14, 2010
"Income Taxation is a Failed System"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=153:income-taxation-is-a-failed-system&catid=46:canadian-commentary&Itemid=134
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written by thomas mosley, February 14, 2010
I did indeed read your commentary. The fundamental problem is that you place the blame on the rich, and approach the problem of disparity in wealth allocation from a class warfare perspective. This is clear from your tone, both in your article and your response. The problem is the government, which acts as a mechanism of imbalance, through both taxation and regulation.
Read the comic I posted, and you will have a firmer grasp not only of the nature of money (which is far from being a simple concept, beyond the simple "gold is money" argument), but why money can never really be "hoarded" in a modern economy, even if it is buried in a vault somewhere to never be exchanged again. The only thing that CAN be wasted is the productive capital represented by that money. The derivatives market didn't waste any money, but rather, it provided and still provides a method by which certain actors in our economy can confiscate the productive capital of our society and put it to less productive use. It is the act of theft that is the problem, not the fact that some people are much richer than others.
Consumption spending is the absolute most destructive form of capital allocation. As such, there is no such thing as a "healthy consumer economy", despite what we are told. The consumer economy of the United States is built upon the sand BECAUSE it relies on consumption, which is unsustainable. You argue on the side of progressivism, but progressivism destroys economies by removing the incentive to produce, and encouraging consumption. By subscribing to such ideas, we are literally eating our own arms and legs. Sure, it's a tasty meal for now, but when it comes time to get back to work, we will find ourselves without the means to do so efficiently, because rather than having bulldozers to build the roads you mentioned, we have nothing but a bunch of empty candy wrappers. If you read the comic book, you will understand what I am talking about.
Please don't take what I am saying the wrong way. I am an avid reader of your commentaries on gold and silver. It's just that economics is the single most important subject on this earth right now, and misperceptions in how it works are deadly, as we have seen, even if your conclusions are correct. The VAT tax would most assuredly be suicide, but so is the income tax (which, with automatic withholding, is no longer a once a year bite, so people tend to not miss it as much as they should). Indeed, ALL forms of taxation are self destructive and harmful to society, just as ALL forms of government intervention in the markets are self destructive and harmful to society, at least beyond the basic functions of law enforcement, military protection, etc.
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written by Jeff Nielson, February 11, 2010
NO, the money of the ultra-wealthy did NOT go into REAL investment (i.e. roads, bridges, factories), instead ALL their money went into derivatives - providing ZERO benefit to society.
Second, I did not turn the U.S. into a consumer economy. I simply observed as a matter of SIMPLE ARITHMETIC that any "consumer economy" is much healthier with EQUAL distributions of income.
I said NOTHING about "encouraging consumption". Indeed, you completely IGNORED all the time I spent talking about a BALANCE between consumption and savings.
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written by thomas mosley, February 11, 2010
You make some assumptions that hurt your thesis quite a bit, but arguing about the best method of wealth redistribution by the government is an exercise in absurdism, something along the lines of "what is the best way to kill yourself?"
Trickle down and flood up are both equivalent. In each case, the money winds up in the hands of the wealthy, whether it lands there initially, or it gets there in exchange for goods or services. Both are equally bad because the money comes from some form of theft, and does great damage to the markets when it is forcibly reallocated.
Further, you fail to take into account investment and business consumption. Any money that a rich person sits on doesn't just disappear. They will invest that money in stocks or lend it out (even money sitting in a bank account serves this function). This means that each rich person uses that 90% to fund the salaries of numerous poor and middle class people, even if the money never leaves his accounts. In reality, all he has to do is NOT SPEND IT. Even if he stuffs it in his mattress, that reduces the money supply, and makes everyone else's money more valuable (this effect is counteracted by the counterfeiter in chief, of course, but in a free market, it works). This happens because he has exchanged something in order to get his money, whether goods, labor, or capital.
Another misconception is your equation of consumption with economic health. This is another absurdist argument put out by Keynesians. ANYONE can consume. Only an economically healthy nation can PRODUCE. Consumption is not to be encouraged, and should only be discouraged if and only if you are unable to remove artificial stimulation of consumption. When one consumes goods, they destroy capital. The drive to maximize consumption has devoured all of the capital in the western world, and driven what is left to flee to the east.
Whenever I see someone who appears to have accepted the mainstream view of how economics works, I like to direct them to this comic: http://freedom-school.com/mone...-grows.pdf It is an excellent primer on how free markets work, and what happens when government gets in the way (and explains both why and how it happens).
Your conclusion is sound, however. A VAT tax is most assuredly suicide. But it is not suicide because it provides the wrong incentives (ie discouraging consumption), but rather because is it theft on a massive scale, which we can no longer afford.
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written by JsJ, February 11, 2010
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The point you were addressing in your article here was Taxation Gone Wild – the V.A.T. and its destructive consequences.
I commented on the unnecessary need for any taxation whatsoever by illustrating, in a very broad way, societies that are organized by and for The People.
Whether it be 'mature' OR 'developing' societies, the concept of a 'free' society (one guided by the will of The People seeking mutual wealth) is the same in its application.
You entered the Monopolists-Oligarchs into the mix. This socially destructive element is a social disease. I completely agree with you. It is an element that The People need to be educated about and taught the social, legal, and economic skills that will both keep this disease from developing to begin with and destroy it if it has already grown to malignant levels.
Wealth Concentrators, those who act against the public-social welfare, need to be legally prohibited from acting in ways that concentrate wealth. The People need to design rules of economic behavior that prohibits ANYONE from creating ANY such imbalance to the economic well being of a society.
A system of Economic Interdependence among The People is the IDEA that should be at the center of any 'free' society. But today, the destructive idea of Wealth Concentration is vying for control of the center of society.
Communities, states, nations, and the entire Global Society should be viewed as a solar system of entities revolving around the IDEA of economic interdependence, where no part is greater than the whole.
Wealth Concentrators (Monopolists-Oligarchs) should be viewed as 'Black Holes', attempting to assume the center position in the social system, sucking the life-wealth out of societies, and causing the entire social system to be pulled into ruin and oblivion.
It amazes me that intelligent people STILL fall for the perverted and corrupted view of Wealth Concentration, and fail to realize that their parasitical socially destructive behavior leads them to kill their host. It amazes me even more than The People STILL haven't designed rules of social-economic behavior to prevent this from occurring.
Unfortunately, (I come back to the ROOT cause of the problem) because people still believe they need public administrators-government to do their thinking and social organizing for them, The People have only themselves to blame for the inevitable corruption of their 'authoritarian figures' by the Monopolists-Oligarchs.
The current decisions-mandates for society coming out the US court-justice-government system is clear proof of this Monopolist-Oligarch corruption, and the hand-in-hand ideological collusion between the wealth concentrators and the public administrators.
Currently, the imbalance of the global social system has grown so huge that a 're-balance' is a GIVEN. You can feel the tectonic tension growing each day. And as with most natural occurrences that break under pressure, the re-balance will come surprisingly swift and violent.