Do not fall for a VAT (value added tax)

Do not fall for a VAT (value added tax). It is just as noxious as Cap n’ Trade. The thing that makes it appeal to the Demo/nihilists is its seeming simplicity and seeming low level of taxation. In reality it is complex enough to defy comprehension by the average man. And, just because low percentages are quoted (typically 5 or 6 percent) these are starting numbers that eventually are compounded in such a way that the real tax percentage is many times greater.

As if these drawbacks were not sufficiently bad, the most noxious part of the tax is it gives a license to government for massive intrusion. Every step in the production of a commercial good is subject to government audit.

Production starts with a shrimper in the Gulf of Mexico. He does not buy his catch, but he must pay wages, diesel fuel, insurance, his own wages, profit and other expenses in order to stay in business. His selling price must, at least, cover his expenses, including the VAT applied to his selling price.

Here is a small table comparing 0% VAT, 5% VAT, and 7% VAT as applied to the platter of shrimp Creole:

Spreadsheet, worksheet for 5% VAT

Bottom Note

Bottom note:

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Here is a description of the parties involved, what they do, and how the VAT is applied. Each party is numbered.

1. Shrimper. He owns a boat, outfitted with nets, sonar, diesel engine, and a crew of 3 helpers. He charges enough to pay employees, buy fuel, pay insurance, and keep his craft seaworthy. He charges enough to pay employees, buy fuel, pay insurance, and keep his craft seaworthy. He pays VAT based on the payment made by Buyer1.

2. Buyer1.He leases a berth at the unloading dock, he is outfitted with hoists, tanks, fork lifts, and a staff of four people. He pays his lease, and his staff. He pays insurance, utilities, and maintenance costs. He pays VAT based on the payment by Buyer2.

3. Buyer2.He owns (roadworthy, licenced) trucks outfitted with onboard, saltwater (stainless steel) tanks. H e takes ownership of the shrimp dockside, and transports them to a nearby urban center. Each truck has an experienced, licensed driver. He pays licences for his trucks (plus road fees and insurance), he rents an office in the urban center, he pays his drivers and maintenance costs. He pays VAT based on the payment by the Wholesaler.

4. Wholesaler. He leases a building in an industrial park in the urban center. The building has a loading dock and several overhead rails that lead from the packaging room to the loading loading dock. The packaging room houses weighing equipment, packaging equipment, dollies, ice bins, steam cleaning equipment and two industrial-grade computer terminals. On the street side of his locale he has a showroom full of ice-filled showcases, plus refrigerated chests stacked with boxes of shrimp. He pays VAT based on the payment by the Supplier..

5. Supplier. He owns trucks, and hires drivers. His business consists of taking orders from chefs and restauranteurs. He visits wholesalers, inspects their goods, places orders on behalf of the restauranteurs. His drivers visit different wholesalers, and gather orders for delivery. His VAT is based on payment by the Restauranteur.

6. Restauranteur. He receives raw vegetables, shrimp, and condiments, prepares them in his kitchen, and serves a tasty Shrimp Creole. He has a 5-year lease on the space where his restaurant is situated. He has 5 full-time employees and 5 part-time employees .

7. Customer.After eating, he pays his bill, which includes all the VAT accumulated in the supply chain. He notes that the listed price for Shrimp Creole is $22. With a 5% VAT, he is billed $23.10. Unless he knows how VAT works, he is unaware that without VAT, he would have payed $18.90.