While we await the lame duck Congress to find out if and how much our taxes will rise next year, it might be well to remember that government and the programs it loves to fund will only keep growing until it runs out of funding. Hardly any government will willingly reduce programs, cut funding, or otherwise act within reasonable limits.
A case in point is the proposal by the European Commission to create a European value-added tax as part of a package of proposals to find new sources of revenue for the next European Union budget. Alternatives in the package include an EU energy tax and an EU corporate tax. The bottom line is that the EU doesnt want to be dependent on direct contributions from the national governments that make it up and oversee its programs. Instead, it wants to set its own budget and policy by directly taxing the citizens of those countries.
My advice to our European friends is, dont go for it. While it may seem at first like a logical step, long-term it will unleash a Pandoras box of commissions, studies, regulations, and bureaucrats to enforce the regulations. And what is already a society overburdened with regulations will become more so.
Several surveys released this week confirm the fact that indirect tax rates, including VATs, are rising in the U.S. and globally.
KPMGs Global Corporate and Indirect Tax Report reported increases in global indirect tax rates during 2010 with additional upticks on the horizon. The average global indirect tax rate increased from 15.41 percent in 2009 to 15.61 percent in 2010, according to the report.
It seems clear that governments worldwide plan to use indirect axes as one route to help create a more stable tax base and raise revenue to fund stimulus packages or tackle government debt, said Rodney Lawrence, principal-in-charge of KPMG LLPs International Corporate Services practice.
According to the KPMG report, countries with established VATs such as the U.K., Spain, Greece, Finland, Poland, Romania, New Zealand and Portugal have already confirmed plans or begun to increase indirect tax rates, and both China and India are headed toward implementing national VAT systems.
Domestically, the Tax & Accounting business of Thomson Reuters published the Sabrix report on changes to state and local sales and use tax codes. There were a total of 194 changes, with 94.8 percent of them being increases or new taxes.
And the Vertex Sales Tax Report found that the average U.S. state sales tax rate increased to a record average of 5.52 percent in the first nine months of 2010, exceeding the former record of 5.48 percent for the full year 2009. This marks the highest average U.S. state sales tax rate since Vertex began tracking the data in 1982.
Of course, the purchaser who pays a sales tax is normally somewhat aware of the rate. With a VAT, its a different story, particularly where there might be a VAT imposed on top of a VAT, as the EU proposes. Few countries have imposed spending cuts, as Canada did, in implementing their VATs. And few if any countries voluntarily reduce a VAT once its imposed.
Whats protecting the U.S. from such a tax is the fact that liberals see it as a regressive tax, hitting low- and middle-income taxpayers more severely than the rich, while conservatives are offended by the hidden nature of the tax.
