For years, I’ve been warning that a value-added tax (VAT) would be a terrible idea. Simply stated, politicians would have no reason to control spending or reform entitlements if they had a new source of tax revenue.
In this video, I explain why this European-style national sales tax is a money machine for bigger government.
Japan’s politicians are confirming my argument. Here are some details from a new report in the Wall Street Journal.
Japan’s parliament passed a landmark tax bill Friday, finalizing the legal framework to double the nation’s sales tax by 2015 as a step toward fiscal reconstruction. The upper house enactment of the contentious bill marks the end of Prime Minister Yoshihiko Noda’s tortuous 12-month road to raise the tax to 8% in April 2014 and 10% in October 2015. …The sales tax hike will be the first since 1997, when the rate was raised to the current 5% from 3%.
Wow, more than tripling the tax between 1997 and 2015. I wonder how long it will take Japan’s political class to boost the rate to 20 percent?
But that’s only part of the story.
Mr. Noda also had to promise to dissolve the lower house “in the near term” in exchange for…endorsement of the bill in the opposition-controlled upper house.
Wow, if I’m reading that passage correctly, it sounds like Prime Minister Noda is willing to lose power in order to impose this new tax. This shows an amazing amount of greed for new revenue.
I’m surprised, though, that his party didn’t kick him out and elect a new leader. They must be as politically incompetent as the supposedly right-wing party in Slovakia that surrendered power to the socialists in order to get support for the Greek bailout.
However, the WSJ article also suggests that the tax is not a done deal.
The bill includes a provision making an “economic upturn” a condition for implementing the rate hike. The government refused to specify in the bill exactly what an upturn entails, and lawmakers have different interpretations. DPJ tax policy chief Hirohisa Fujii told Dow Jones that only an economic shrinkage of 3% or more should prevent the tax increase from taking place.
Isn’t that remarkable. This onerous tax hike can only go into effect if there’s an “economic upturn,” and one of the sleazy politicians from the ruling party is defining an economic contraction of -2.99 percent as meeting that test.
Sound like Mr. Fujii should become friends with the Obama Administration officials who relied on Keynesian economic theory to concoct an infamous prediction that unemployment would never rise above 8 percent if Washington squandered more than $800 billion on a faux stimulus.
But if he’s smart, Mr. Fujii will grab as much loot as possible and emigrate. Japan’s long-term finances are a disaster, and the VAT increase is a pretty good sign that politicians have no intention of turning the ship of state before it rams the fiscal iceberg.
And now you’ll understand even more why I’m worried about the pro-VAT sympathies of Mitt Romney and Paul Ryan.
