Remember when Donald Trump said he was going to give middle class Americans a big YUGE tax cut? Well, we have some bad news for you. Fuggedaboutit.
Now, if you’ve been a Trump supporter, raise your hand if you feel like this:
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The Washington Post is reporting that the Trump administration is considering two new taxes as part of their upcoming tax reform package — a carbon tax and a VAT, or value added tax. A carbon tax will potentially increase energy costs, but a VAT will hit everybody and everything.
But wait, you say, I thought my taxes would be going down. Sorry, folks. In case you missed it, this is a Republican administration. And no matter what they say, Republicans never, ever lower your taxes. Oh sure, you might get a few dollars off your federal tax bill, but they will more than make up for that by increasing taxes elsewhere. Ronald Reagan did that, and called many of his new taxes “user fees.” Now Trump is looking to do something similar. They complained for eight years about “wealth redistribution” under President Obama. Now, in a move taken directly from the Ronald Reagan playbook, Trump wants to redistribute it back to the top.
A VAT is a move toward something conservatives have wanted for years — a flat tax. But a VAT, like all consumption taxes, is extremely regressive, causing those with lower incomes to pay a higher percentage of that income in taxes than those who are more well off.
VATs exist in a number of countries around the world. The European Union, for example, has one. They are essentially a national sales tax on steroids. Not only does the end consumer pay the tax when they purchase the product or service, VAT is collected at every step along the way in the manufacturing process. Which means that consumers will pay more for literally everything that they purchase. And unlike state sales taxes, which get tacked on at the cash register, VAT doesn’t usually show up as a line item on a sales receipt — it is rolled into the price that you see on the shelf.
Now, don’t misunderstand what I’m saying. I’m not necessarily opposed to VAT taxes. They’re used in many countries to provide citizens with things like free, universal healthcare. It’s the uniquely American application of a VAT as a revenue source that will permit lower tax rates on the well-off that’s the problem. And consider this: if you live in a state with a sales tax, you’ll pay more of that, too, because that tax is based on the purchase price of an item and that item will already have the VAT rolled into it.
So if Trump’s idea for a VAT (really a national sales tax) moves forward, you’ll likely find that the few dollars more you’ll receive in your paycheck will be more than offset by the cost of the VAT you’ll be paying. Meanwhile, with their tax cut the rich will be able to buy that new Ferrari that they haven’t been able to afford.