The current rage amongst the intellectual elite is that we should join our European friends and put in place a national sales tax, commonly referred to as a Valued Added Tax (VAT). If we adopt this form of taxation, you might as well prepare for the death knell of both our economy and our freedom.

It should be noted that some smart people are in favor of this tax form and they have good arguments. A few years back, I saw Arthur Laffer give a speech to the California Republican Party where he whole-heartedly endorsed the VAT. If you are not familiar with him, Dr. Laffer is the creator of the Laffer curve and quite a brilliant man. He is also a wonderfully nice and personable man, especially noteworthy for an economist most of whom can be duller than the typical CPA.

When I went up to him, I told him he was dead wrong about the VAT. Instead of blowing me off, this internationally-known economist said he would love to hear my thoughts. What ensued was a series of correspondence between him and me. Laffer sent me these wonderful letters with charts and graphs explaining why the VAT made sense. There were arrows and square root symbols flying all over the place. I in turn sent him my thoughts. Despite the fact he is a lot smarter than I am, he was wrong and I was right.

The major issue is that the VAT is an invisible tax. You never see it. The rate can be adjusted and you would only blame retailers for the increased prices. Think of gasoline taxes. If you stand around the pump and asked people about the cost of gas, they would say things about oil companies which make their mothers want to get the nearest bar of soap. But if you state that the government is making a lot more on a gallon of gas than the oil company is, they are clueless. The oil company even posts signs on the pump delineating the taxes, but people ignore them.

Review your phone bill and see how you are getting raped. And this is not even a totally invisible tax. It sits in front of your face and most people don’t even see it. The VAT is totally invisible. You never see it directly in your cost unless you collect it. Therefore, it can be easily manipulated. For instance, the rate in Denmark has gradually been raised from 9% at its inception in 1962 until today where it is 25%. Continued...