Friday, September 17, 2021
HomePatriot DispatchesA Few Quick Thoughts on The Ryan Plan

A Few Quick Thoughts on The Ryan Plan

Image via ABC News, abcnews.go.com

The Business Consumption Tax
What are the implications?

1.  It is a hidden tax. When congress wants to raise it only a few greedy corporations will complain. The average voter will be easily sold hikes on this tax as sticking it to the evil rich.

2. It is a tax on labor. Costs of goods and services are subtracted out. It used to be a fundamental conservative understanding that if you want less of something; TAX IT. By way of explaining progressive terminology I remind that LABOR means JOBS for WORKERS. Taxing labor, as this VAT does, means fewer jobs and not as a function of increased productivity (good) but as a function of the tax code (bad).

3. What happens to the jobs? The BCT is an 8.5% tax on labor. First, borderline employees (in terms of cost/profit) are sent home to collect unemployment checks. Second, jobs that can be outsourced/expatriated will have an additional 8.5% incentive to be outsourced. Dell’s new call center can be sub’ed out to an Indian company (like their old one) and avoid paying the tax on labor. Microsoft will outsource development to Brazil or China for the same reason. These labor only jobs that lack a tangible product cannot even be taxed at the border. There is nothing to import. Even labor intensive products that can be taxed at the border will suffer job loss since an 8.5% tariff cannot recover the compounding costs of the 8.5% BCT. American companies will spend billions complying with and calculating, and naturally trying to dodge, the tax. A VAT tax totally fails to account for ordinary profit mechanisms as well. As each reseller, from raw materials to refined product, charges the next company in line his normal price then adds the tax on top it increases each companies base costs which in turn magnifies his total cost and requires him to increase his price in order to maintain the same profit margins.

I’ll illustrate using a quick example:

Steps to market No Vat Tax Ryan Vat Tax % Cost of VAT
Raw Materials Base Costs (equipment, royalties, leases, etc) $500.00 $500.00
Raw Materials Production/Extraction Labor Costs $500.00 $500.00
Sub Total $1,000.00 $1,000.00
Raw Materials Profit (20%) $200.00 $200.00
Applicable Ryan VAT Tax (8.5%) 0 $59.50
Raw Materials Sales Price $1,200.00 $1,259.50 4.724%
Materials Refiner Base Costs $1,200.00 $1,259.50
Materials Refiner Production Costs $500.00 $500.00
Sub Total $1,700.00 $1,759.50
Materials Refiner Profit (20%) $340.00 $351.90
Applicable Ryan VAT Tax (8.5%) 0 $72.41
Materials Refiner Sales Price $2,040.00 $2,183.81 6.585%
Materials Refiner 2 Base Costs $2,040.00 $2,183.81
Materials Refiner 2 Production Costs $500.00 $500.00
Sub Total $2,540.00 $2,683.81
Materials Refiner 2 Profit (20%) $508.00 $536.76
Applicable Ryan VAT Tax (8.5%) 0 $88.12
Materials Refiner 2 Sales Price $3,048.00 $3,308.70 7.879%
Finished Product Base Costs $3,048.00 $3,308.70
Finished Product Production Costs $500.00 $500.00
Sub Total $3,548.00 $3,808.70
Finished Product Profit (20%) $709.60 $761.74
Applicable Ryan VAT Tax (8.5%) 0 $107.25
Finished Product Sales Price $4,257.60 $4,677.69 8.981%
Distributor Base Costs $4,257.60 $4,677.69
Distributor Labor Costs $500.00 $500.00
Sub Total $4,757.60 $5,177.69
Distributor Profit (10%) $475.76 $517.77
Applicable Ryan VAT Tax (8.5%) 0 $86.51
Distributor Sales Price $5,233.36 $5,781.97 9.488%
Retailer Base Costs $5,233.36 $5,781.97
Retailer Labor Costs $500.00 $500.00
Sub Total $5,733.36 $6,281.97
Retailer Profit (20%) $1,146.67 $1,256.39
Applicable Ryan VAT Tax (8.5%) 0 $149.29
Retailer Sales Price / Customer Cost $6,880.03 $7,687.65 10.505%
Added Cost to consumer with VAT mean/percentage $807.62 11.74%
 

Assuming a national sales tax of 8.5% (God Forbid), in the absence of a VAT, the tax would be collected on the non VAT Customer Cost. Total Customer Cost would be Customer Cost + 8.5%.

$7,464.83 $7,687.65
 

Added Cost to consumer with VAT over straight Sales Tax

$222.82
Sales Tax/ VAT Tax Collected $584.80 $563.09
Corporate Profits $3,380.03 $3,624.56
 

Revenue lost to government despite increased cost to consumer compared to a straight Sales Tax.

21.71 -3.71%

 

First, in typical government fashion while driving up costs for consumers the BCT brings in LESS revenue for the government than would a Sales Tax of the same rate. (I don’t support a Federal Sales Tax. They have too much money.) I do not have a “deep” or complex supply chain for my example which might in the real world involve two or three times as many entities in the path from raw materials to retail sales. The more steps to market; the worse this problem would become. On the other hand, really large businesses that control most or all of their chain would see reduced costs compared to my example giving larger business an additional unfair advantage against small business.

It IS unfair because it is a function of the tax code not the marketplace.

Some would argue the elimination of the Capital Gains Tax would cause a corresponding reduction in costs and it would probably affect the final numbers. In fact, in my example, the amount of collective capital gains might well outweigh the added costs of the VAT. The companies might be able to effect a price reduction sufficient to offset the increase caused by the BCT.

But all of my example companies have healthy profits. In the real world one or two will be scraping by. Additionally, many would be pass-through type entities such as LLC’s or “S” Corps. Most small businesses are one or the other of these. Unless we are going to eliminate the personal income tax the individual shareholders will not pay a penny less in taxes with the elimination of the Capital Gains Tax.

The VAT might be great for GE and other massive entities with large profit margins. For small business, the engine of job creation, or companies struggling to stay afloat in this economy, it probably sucks. It makes them less able to compete with imports and Big Corporate.

The BCT WILL put some small businesses out of business.

4. A consumption tax at the state level is self-regulating. The higher it gets the more likely folks will drive across state lines to avoid it. THIS IS A GOOD THING. It checks the growth of taxes very effectively.

5. Border adjustable means we will what? Audit foreign businesses to determine their share of tax? Apply a single 8.5% to imports and neglect the “compliance” costs US companies will have to eat? Watch other countries levy retaliatory taxes on US exports? Forget the WTO nonsense, only the US and maybe the UK gives serious credence to that group of clowns.

6. No reason to believe Capital Gains are permanently gone since the Left can restart it upon retaking the house. AND THEY WILL!!! Oh, don’t worry it will only apply to really BIG and RICH businesses. Right?

7. Imagine a company doing $10M a year in business earning a 3% profit. They are struggling a little. Currently they are paying about $100K in Capital Gains Taxes. Labor costs are 30%, about $3M. Now we get the Ryan BCT. They don’t have to pay those nasty Capital Gains anymore. Instead they will pay the 8.5% BCT on at least $3M or about $265K in BCT Taxes.   Great Deal, huh? It could be worse. A company might be losing 3% in an otherwise similar situation and find they must pony up an additional $265K to cover the BCT Tax leaving themselves 6% short instead of 3%.

The BCT applies whether you are making money or losing it as far as I can see. And when that entrepreneur, who has been struggling to survive this Federal Reserve/Congress induced slowdown, is faced with that; his best option might well be to close it down and lay off the 75 employees he has been trying to support. (Only in Ayn Rand novels, Big Government and Big Corporate do you find company owners entirely devoid of feeling for their employees.)  Borderline companies might be surviving in this economy then be sunk by this.

8. As a Value-Added-Tax the BCT has another effect. It makes me cautious about adding value. The more value I add the greater my tax liability. I will be more inclined to trade in products instead of making them. If I buy a widget for $100 and sell it for $125 I can afford the tax of 8.5% on $25 ($2.13). If I buy it for $100 and a bad market forces me to sell for $98 at least I won’t owe any tax. On the other hand, if I make a widget and my raw materials costs are $50 and I add $50 worth of value using employees, and I sell for $125 I will owe BCT on 8.5% of $75 dollars ($6.38). If I have to sell it for $98 again as above I will lose $2 and owe 8.5% on the $48 value added ($4.08). Now my $2 loss becomes a $6 loss.

No, I will avoid making things (Adding Tangible Value) and opt to buy from others for resale. Carry that nationwide and we are again pushing manufacturing jobs overseas so we can import finished products with less tax complications.

9. None of this is meant to imply the Capital Gains is a great idea. It is a terrible idea. The BCT might be worse. Capital Gains Tax forces many businesses to go the pass-through route to avoid being double taxed. By taxing profit it deprives business of capital that could be used as capital was meant to be used. Capital grows productivity. This exposes RINO’s, Progressive’s, Leftist’s and Socialist’s ignorance of the most important economic law known to man.

Intelligent production is synonymous with wealth.

The intelligent part of production is a function of personal risk for the producer/investor.

The more beneficial products a society produces, the wealthier that society will become.

There is no such thing as “too much consuming going on.” That would imply excess production. Since excess production of a product reduces prices for that product for society as a whole it is a good thing. A true excess, when it happens, results in loss for the investor which is a corrective trait of a free market. Yet even this excess benefits society in most cases since it still provides products at reduced price.

The difference between intelligent production and socialist production is risk of capital loss.

Intelligent production is brought about by private investment of capital for the purposes of profit. This REQUIRES intelligent risk assessment in order to insure proper capital allocation. If the investment doesn’t increase production of desirable items it will result in a personal loss to the investor.  This natural, inescapable, linking of intelligent capital seeking profit to increased production forces the capital investor to constantly seek ways to invest that capital in a manner which by default increases production. This leads subsequently to increased wealth for all of society. Here is the ultimate truth of capitalism; it is almost impossible to invest capital in a profitable way that does not increase production either directly or indirectly. As a general rule, if it doesn’t increase productivity it won’t be profitable.

Socialist production involves injection of capital based on political considerations not as a way to mitigate risk of loss or to increase profit.  This is not to say socialist investment doesn’t carry a risk of loss or gain. It is divorced though from capital loss or gain. Instead any loss or gain that influences the decision making process will be political in nature. This is an important distinction since political profit can often be had by the unconscious or even deliberate loss or misuse of capital. The person making the “investment” decision in a socialist context will usually neither gain nor lose based on the Capital Gain or Loss. If existing capital stays flat or worse yet falls then productivity will do likewise.

For you Federal Reserve fans I must point out FRN’s are NOT capital. They are paper that at best represents available capital and QE1.2.3 only serves to reduce each FRN’s fractional representation of actual existing capital and transfers that value to the politically favored.

Flat or declining productivity in the face of increasing population necessarily means an increase in poverty. Generally an increase in poverty is felt as a GAIN by socialists since it tends to increased demand for government interference which translates into a net increase in the available political “capital.”

A rising tide lifts all boats, indeed. When political capital becomes the master of productive capital an ever increasing percentage of the population begins to see the political realm as the source of wealth.  People naturally gravitate to the ascendant system whether productive capital or political capital. This means when socialist production is dominate and productive capital subservient to it, the most capable and talented people will pursue political capital even if their desire is for wealth. This drain on intellectualcapital away from true productivity further impoverishes society.

“Greed is good” says Gordon Gekko and as a result Hollywood slanders the system that has peacefully fed more people than ANY other system in history. The interesting thing about greed is that it is not defined exclusively in relation to money. Oxford says “intense and selfish desire for something, especially wealth, power or food.” The greed for power, political capital, has dominated in recent history and has resulted in the murders of more people in the last 100 years than all of the monetary greed in all of history.

Jobs Training
Adds layers of confusion and maintains illegitimate Federal involvement.

If states are good boys they gets a check?

No worker left behind accountability?

Why not just get the Federal Government out of the jobs/worker/serf training business?

Budget Process Reform
Here is where we can see Ryan is either not serious or completely disingenuous.

He proposes we bind by force of law a congress that refuses to be bound by constitutional obligation.

I need not touch on every item listed in this section; from TOTAL CAPS ON SPENDING to SUPERMAJORITY FOR TAX INCREASES they all purport to impose legal restrictions on congress that are both fruitless AND unconstitutional.

First, being mere laws congress can change them as soon as the majority changes again.

Second, as congress already ignores the constitution why would they not simply ignore the law, if changing it isn’t politically expedient? Do we think either won’t happen?

Third, congress cannot be bound by law from legislating on particular subjects or from taxing or spending. Only the constitution can bind congress in this way and again, lacking any accountability mechanism, they ignore that.

 

You may have guessed by now I am not particularly a supporter of the Ryan Plan. Which puts me in Newt’s camp at least before he stuck his finger in the air and recanted.

My understanding is Newt thought it a bridge too far. I suspect he gets nosebleeds on a curb.

For me the Ryan Plan bombs because it fails to address the two most important questions facing the US today.

  1. How to really cut spending to balance the budget and pay off the debt
  2. What is the proper role of constitutionally limited government and how do we put it back in that box.

The Ryan Plan doesn’t significantly forestall national bankruptcy and it doesn’t END any federal program I have been able to find. The only credit gets is for being big, it does nothing important.

I know this is supposed to be the “conservative” plan. I don’t see how that can be.

 

Related articles

 

Selected from the dispatches by RH, because it is an excellent opinion piece and brings forward important discussion of the VAT tax within the Ryan budget proposal.

Roguehttp://sago.com
A father of eight, manager of a small business, concerned American.

26 COMMENTS

Leave a Reply

26 COMMENTS

  1. Good report, Rogue. And timely. While the centerpiece of the attention paid to the Ryan Plan is the way it treats Obamacare and Medicare, it ignores this part of the tax plan. What it exposes most is Ryan’s rather narrow resume as national leader.

  2. Thank you so much for digging into this. I can see why the presidential candidates, for the most part, are not accepting the plan as a whole. Some are using it as a starting point, and promise to put forward a plan of their own.

    I see the presidential election, second only to the debt ceiling crisis, as a forum for people who want to lead us, to tell us what they want to do. Those who do not tell us need to be kicked to the side of the road, but quickly.

        • I used to write HTML for a living

          I’d rather have my fingernails pulled out one by one.

          And thanks for the post. I, too, did not know there was a VAT in the Ryan plan. I am absolutely and totally opposed to the VAT, though not all consumption taxes, because of its hidden nature.

          I like any tax better when John Q. Public can see clearly, right there on their receipt or pay stub, exactly how much of their hard earned wages Uncle Sugar has taken to pound down the nearest rat hole.

          • I agree not all consumption taxes are bad.

            I think state use of sales tax is a good example of a good consumption tax.

            Like you say not hidden and able to be avoided if excessive.

            At the state level much preferred to any form of income tax or property tax.

  3. Excellent and informative article Rogue. As Vassar said above, the most attention, if not all the attention is being paid only to the Medicare or “Mediscare” portion of the plan. If I am not mistaken Ryan has been working on developing plans, and this is just his latest version. The VAT was a part of the last plan released that had no/little support, probably because of the VAT portion. Of course the Liberals aren’t screaming about that as that seems to be one of their goals. When the VAT was included in the Debt Commission report, the VAT portion of the recommendations was a big part of why that report met with the circular file.

    I’m not sure we have to worry about the Ryan Plan, in this congress at least, as it was shot down in the Senate. Even if we had control of both houses and the WH, I still don’t believe it would pass in it’s current form. More than just the VAT portion would be eliminated or changed, and, if I am not mistaken it was written in a manner that all the parts have to pass in order for any of it to work. 50 years is an awful long time to take to balance the budget and reduce the deficit.

    I give Ryan credit for at least making an attempt to put pen to paper, good or bad. It is far more than the Liberals have done with respect to the budget process. I wonder though if all the people now screaming for Paul Ryan to run for the 2012 Presidency would still support him if they knew he supports a VAT. Wasn’t that something many disliked Daniels for?

  4. I’m still utterly lost on tax issues. As soon as I start to consider them the unbidden thought races through my mind, the one just now for instance…

    “Merely because I added value to a product entitles the government to a share of it how?”

    What entitles the government to a share of my property, rightfully earned by my own risk, sweat, tears and blood? Perhaps, if a single government bureaucrat had helped rather than slouching behind their desk, coffee and donut laden, to tell me why I cannot increase my own prosperity by my own hard work. Its time to starve this beast, its grown gluttonous on our hard work and now desires more, ever more.

    • I’m with you there.

      Even when we concede the necessity of taxes due to the necessity of government we must still address the question of the proper role of government.

      The only legitimate government is one that does only the absolute necessities. Taxes should only be to fund the necessary government never to influence behavior.

      I am probably close to a minarchist model. I think the founders were as well.

      • Question is Rogue, who gets to define what are “absolute necessities” for government? Even among conservatives, there is no consensus on the definition. Who cares what the Liberals/Socialists believe. There is no question that there is a raging debate between those identifying as conservative. There are those that are far right, and those that are right of center. I am no RINO, but, it appears that the Independents, a major voting block unquestionably, will not accept either extreme. It appears that the Republicans are separating the ideologies, or those that understand the difference between big C and little c. Do we want to get rid of Obama and the Progressives, or do we want to concentrate on making the party more pure? It truly comes down to that. I personally don’t believe that we can accomplish majorities, and purity, at the same time. I’ll go for the majorities first, and then expect those elected to change the direction of the party, and the direction of the country.

        • I do not think it is that hard if the right question is asked. The right question is: should the federal government be doing this? Unfortunately too often the wrong questions are asked. They ask is this a good or a bad thing. They ask is this a liberal or a conservative thing. Just starting the debate with the right question can go a long way toward changing things for the better.

        • You pose a valid question regarding where to draw the conservative line. From a purely practical standpoint it would be at 50% +1 of the voting population.

          We would suppose we could be that pure and no more.

          The folks that founded the country didn’t see it that way. I don’t either.

          For me it raises other questions.

          Do I have certain unalienable rights?
          Do I have a RIGHT to my life?
          A RIGHT to my liberty?
          A RIGHT to my property?
          A RIGHT to the limited government described by our constitution?
          Do I have a RIGHT to expect government to obey its charter? To obey the law?

          Does a majority, with no offense on my part, have a right to deny my right to Life? Liberty? Or Property? Can they set aside the Rule of Law on mere majority opinion?
          Can they “construct” offenses to justify depriving me of my rights?

          Setting aside the practicalities for a moment, if I am endowed with certain rights and the majority refuse to respect those rights and the authorities refuse to protect those rights am I bound to respect their decision? If so, do I really have rights? Or privileges?

          If I really do have rights, and they refuse to honor them do I have a further right to protect my rights, which are in fact my property?

          Most agree I have a right to protect my home (castle doctrine) do I have a right to protect my rights?

          This begins to depart far from your question.
          But maybe not. In 1765 the average American was only slightly more engaged than our modern American. Those who served as agitators were in the clear and even extreme minority. The average citizen saw the give and take of parliament and colonial legislatures as a reasonable process for finding the middle road, the 50% plus 1 as it were, regarding parliamentary encroachments and Englishmen’s civil liberties.
          A few saw clearly that such compromises could only end in subjugation by gradual process. They toe’d a hardline to make sure NONE of the parliamentary encroachments stuck and they did not always have popular opinion on their side.
          Today we have allowed far too many of these encroachments on our liberties without a proper and sustained effort to draw a line and say, “Here we will stand.”
          Even now, by practicality, we are to be led around by a fickle popular opinion that makes decisions concerning the proper role of government with all of the forethought they use to order chicken from a drive-through window.

          Napoleon once said, “I do not find circumstances, I make circumstances.”

          Patrick Henry, Sam Adams, Lee and Otis made circumstances by refusing to compromise or lose sight of the goal. The preservation of their rights as men and as Englishmen.

          This doesn’t mean we need to start a war to preserve our rights. They didn’t start a war to preserve theirs.

          They merely, patiently, consistently, firmly set forth their requirements and Great Britain elected to make war instead of doing right. Great Britain could also have chosen peace. George III chose, the war was not the fault of the Americans.

          We must stand firm in our rights, neglecting practicality, shaping popular opinion when we can and refusing to bow down to it when we can’t, in the way our forefathers did.

          Recognizing, as they did, compromise leads to subjugation.

          I may be willing to team with someone who doesn’t agree with me and surely the founders did that. It must always be done with the understanding that my principles won’t be compromised.

          As an aside I do not accept the premise that the independent voter will not accept constitutional government. I think they have been taught by both parties to believe neither party intends to deliver. Recent history confirms the failure part and the Tea Party turnouts supports the idea that people do want constitutional, limited, government even if they don’t initially understand what all it entails.

  5. I do give Ryan credit for showing more than say Weiner ;).

    His plan still shows the BCT on his site. I assume it is still in there.

    Also there was a blogger call recently where he indicated it might be gone and was quoted as such by several bloggers. He later claimed it was a misunderstanding. Said BCT was still there. Can’t find the link Google is not working for me.

    Whether Boehner’s recent debacle or the Ryan plan I have a problem with Republican proposals that, even if fully implemented, would not solve our looming debt problem.

    My five year old understands if she wants two cookies she starts by asking for five then working her way down.

    When we need ten cookies the Republicans start by asking for one and end by settling for the fresh baked smell.

  6. Thanks for the information, Rogue. Like GC, I wasn’t aware that this was included in Ryan’s plan. I’ll check this out.

    I’ve spent most of my adult life working in manufacturing, so I don’t have any difficulty understanding how detrimental a VAT tax can be for that industry. I think the mfg. industry is the generalized association that most of us have in our minds when we think of VAT taxes.

    I got into a conversation about VAT taxes with someone not long ago. It was just two people tossing around possibilities, etc. I have some questions, and maybe someone here can answer them.

    If we start going in the direction of applying VAT taxes in an effort to generate tax revenue, how broad could that go???

    Could food processing/canning be considered as “adding value” through preservation and canning of product?

    What about restaurants? If I go into a McDonald’s, order a Quarter Pounder w/cheese, when money exchanges hands, we have a contract for a final product that will be produced and provided to me, the consumer, right? Could the government define that there is “value added” via the SOP of making that burger?

    What about the service industry? The “final product” isn’t as tangible as it might be in an industry such as mfg. but it exists all the same. For example, suppose someone contracts with a computer engineering firm to develop a specialty software app for the business. Could the government define that there is “value added” in the process used to develop that app? Same for advertising and marketing.

    How broad could the government end up going with a BCT and/or VAT?

    • The mfg is self explanatory and I think like you say anybody with significant experience in mfg understands.

      I think the other things you mentioned are completely covered by the BCT. It says it is a subtraction style tax so a business takes total revenue and then subtract out goods and services purchased.

      I didn’t see on Ryan’s site any mention of exemptions for particular industries.

      So for food I would read that to mean even a farmer would be required to pay the BCT on the difference between total sales and his supplies and purchased services. This means if he hires his field plowed by a contractor he could subtract that cost but if he plowed himself he could not subtract his labor cost whether he did it or had an employee do it. His plowing contractor would however have to pay the tax if he did contract it out.

      On the services side it would mean a Chinese programming outfit would not have to pay the tax but an American outfit would have to pay it after subtracting out goods and services they themselves purchase.
      Given that Chinese or Indian programmers already work cheaper than Americans this adds an 8.5% additional incentive to send it over there.

      That is why it is so directly a tax on labor. After goods and services are subtracted what is left? Labor and profit. They already tax profit with Capital Gains. This means a tax even if there is no profit.

      Using your burger example I think it reads pretty clear. Subtract out goods and services from total sales and pay on that amount. So the value added would include the burger flipper.

      In a purely economic sense he is adding value to the burger, it has more value to you cooked than raw.

      Same with canning vs unpreserved. If it didn’t add value you would always buy raw veggies.

      The how broad answer I think is all of the way. It would still be IRS enforcement.

      • Thanks, rogue, and I appreciate the response. Everything I’d been able to find re: VATs was rather vague on how broad this could go (perhaps intentionally vague so as not to get the general public riled up about it). My own instincts have been “as broad as the gov’t wants to take it”, and your feedback confirms that to be about right in this case.

        • I’ve given up on being disappointed and feeling betrayed by the Republican Party. I take it as a given.

          I have been politically aware since Carter and I have never seen a Republican Party serious about limited government or lower taxes.

          Individual politicians yes but as a party they are all talk.

  7. No matter what tax plan gets passed, any tax preparation software will be a nightmare to implement.

    It will get to the point taxes will be 100% and we will be no better than slaves.

    Good job on the analysis Rogue.

  1. Good report, Rogue. And timely. While the centerpiece of the attention paid to the Ryan Plan is the way it treats Obamacare and Medicare, it ignores this part of the tax plan. What it exposes most is Ryan’s rather narrow resume as national leader.

  2. Thank you so much for digging into this. I can see why the presidential candidates, for the most part, are not accepting the plan as a whole. Some are using it as a starting point, and promise to put forward a plan of their own.

    I see the presidential election, second only to the debt ceiling crisis, as a forum for people who want to lead us, to tell us what they want to do. Those who do not tell us need to be kicked to the side of the road, but quickly.

        • I used to write HTML for a living

          I’d rather have my fingernails pulled out one by one.

          And thanks for the post. I, too, did not know there was a VAT in the Ryan plan. I am absolutely and totally opposed to the VAT, though not all consumption taxes, because of its hidden nature.

          I like any tax better when John Q. Public can see clearly, right there on their receipt or pay stub, exactly how much of their hard earned wages Uncle Sugar has taken to pound down the nearest rat hole.

          • I agree not all consumption taxes are bad.

            I think state use of sales tax is a good example of a good consumption tax.

            Like you say not hidden and able to be avoided if excessive.

            At the state level much preferred to any form of income tax or property tax.

  3. Excellent and informative article Rogue. As Vassar said above, the most attention, if not all the attention is being paid only to the Medicare or “Mediscare” portion of the plan. If I am not mistaken Ryan has been working on developing plans, and this is just his latest version. The VAT was a part of the last plan released that had no/little support, probably because of the VAT portion. Of course the Liberals aren’t screaming about that as that seems to be one of their goals. When the VAT was included in the Debt Commission report, the VAT portion of the recommendations was a big part of why that report met with the circular file.

    I’m not sure we have to worry about the Ryan Plan, in this congress at least, as it was shot down in the Senate. Even if we had control of both houses and the WH, I still don’t believe it would pass in it’s current form. More than just the VAT portion would be eliminated or changed, and, if I am not mistaken it was written in a manner that all the parts have to pass in order for any of it to work. 50 years is an awful long time to take to balance the budget and reduce the deficit.

    I give Ryan credit for at least making an attempt to put pen to paper, good or bad. It is far more than the Liberals have done with respect to the budget process. I wonder though if all the people now screaming for Paul Ryan to run for the 2012 Presidency would still support him if they knew he supports a VAT. Wasn’t that something many disliked Daniels for?

  4. I’m still utterly lost on tax issues. As soon as I start to consider them the unbidden thought races through my mind, the one just now for instance…

    “Merely because I added value to a product entitles the government to a share of it how?”

    What entitles the government to a share of my property, rightfully earned by my own risk, sweat, tears and blood? Perhaps, if a single government bureaucrat had helped rather than slouching behind their desk, coffee and donut laden, to tell me why I cannot increase my own prosperity by my own hard work. Its time to starve this beast, its grown gluttonous on our hard work and now desires more, ever more.

    • I’m with you there.

      Even when we concede the necessity of taxes due to the necessity of government we must still address the question of the proper role of government.

      The only legitimate government is one that does only the absolute necessities. Taxes should only be to fund the necessary government never to influence behavior.

      I am probably close to a minarchist model. I think the founders were as well.

      • Question is Rogue, who gets to define what are “absolute necessities” for government? Even among conservatives, there is no consensus on the definition. Who cares what the Liberals/Socialists believe. There is no question that there is a raging debate between those identifying as conservative. There are those that are far right, and those that are right of center. I am no RINO, but, it appears that the Independents, a major voting block unquestionably, will not accept either extreme. It appears that the Republicans are separating the ideologies, or those that understand the difference between big C and little c. Do we want to get rid of Obama and the Progressives, or do we want to concentrate on making the party more pure? It truly comes down to that. I personally don’t believe that we can accomplish majorities, and purity, at the same time. I’ll go for the majorities first, and then expect those elected to change the direction of the party, and the direction of the country.

        • I do not think it is that hard if the right question is asked. The right question is: should the federal government be doing this? Unfortunately too often the wrong questions are asked. They ask is this a good or a bad thing. They ask is this a liberal or a conservative thing. Just starting the debate with the right question can go a long way toward changing things for the better.

        • You pose a valid question regarding where to draw the conservative line. From a purely practical standpoint it would be at 50% +1 of the voting population.

          We would suppose we could be that pure and no more.

          The folks that founded the country didn’t see it that way. I don’t either.

          For me it raises other questions.

          Do I have certain unalienable rights?
          Do I have a RIGHT to my life?
          A RIGHT to my liberty?
          A RIGHT to my property?
          A RIGHT to the limited government described by our constitution?
          Do I have a RIGHT to expect government to obey its charter? To obey the law?

          Does a majority, with no offense on my part, have a right to deny my right to Life? Liberty? Or Property? Can they set aside the Rule of Law on mere majority opinion?
          Can they “construct” offenses to justify depriving me of my rights?

          Setting aside the practicalities for a moment, if I am endowed with certain rights and the majority refuse to respect those rights and the authorities refuse to protect those rights am I bound to respect their decision? If so, do I really have rights? Or privileges?

          If I really do have rights, and they refuse to honor them do I have a further right to protect my rights, which are in fact my property?

          Most agree I have a right to protect my home (castle doctrine) do I have a right to protect my rights?

          This begins to depart far from your question.
          But maybe not. In 1765 the average American was only slightly more engaged than our modern American. Those who served as agitators were in the clear and even extreme minority. The average citizen saw the give and take of parliament and colonial legislatures as a reasonable process for finding the middle road, the 50% plus 1 as it were, regarding parliamentary encroachments and Englishmen’s civil liberties.
          A few saw clearly that such compromises could only end in subjugation by gradual process. They toe’d a hardline to make sure NONE of the parliamentary encroachments stuck and they did not always have popular opinion on their side.
          Today we have allowed far too many of these encroachments on our liberties without a proper and sustained effort to draw a line and say, “Here we will stand.”
          Even now, by practicality, we are to be led around by a fickle popular opinion that makes decisions concerning the proper role of government with all of the forethought they use to order chicken from a drive-through window.

          Napoleon once said, “I do not find circumstances, I make circumstances.”

          Patrick Henry, Sam Adams, Lee and Otis made circumstances by refusing to compromise or lose sight of the goal. The preservation of their rights as men and as Englishmen.

          This doesn’t mean we need to start a war to preserve our rights. They didn’t start a war to preserve theirs.

          They merely, patiently, consistently, firmly set forth their requirements and Great Britain elected to make war instead of doing right. Great Britain could also have chosen peace. George III chose, the war was not the fault of the Americans.

          We must stand firm in our rights, neglecting practicality, shaping popular opinion when we can and refusing to bow down to it when we can’t, in the way our forefathers did.

          Recognizing, as they did, compromise leads to subjugation.

          I may be willing to team with someone who doesn’t agree with me and surely the founders did that. It must always be done with the understanding that my principles won’t be compromised.

          As an aside I do not accept the premise that the independent voter will not accept constitutional government. I think they have been taught by both parties to believe neither party intends to deliver. Recent history confirms the failure part and the Tea Party turnouts supports the idea that people do want constitutional, limited, government even if they don’t initially understand what all it entails.

  5. I do give Ryan credit for showing more than say Weiner ;).

    His plan still shows the BCT on his site. I assume it is still in there.

    Also there was a blogger call recently where he indicated it might be gone and was quoted as such by several bloggers. He later claimed it was a misunderstanding. Said BCT was still there. Can’t find the link Google is not working for me.

    Whether Boehner’s recent debacle or the Ryan plan I have a problem with Republican proposals that, even if fully implemented, would not solve our looming debt problem.

    My five year old understands if she wants two cookies she starts by asking for five then working her way down.

    When we need ten cookies the Republicans start by asking for one and end by settling for the fresh baked smell.

  6. Thanks for the information, Rogue. Like GC, I wasn’t aware that this was included in Ryan’s plan. I’ll check this out.

    I’ve spent most of my adult life working in manufacturing, so I don’t have any difficulty understanding how detrimental a VAT tax can be for that industry. I think the mfg. industry is the generalized association that most of us have in our minds when we think of VAT taxes.

    I got into a conversation about VAT taxes with someone not long ago. It was just two people tossing around possibilities, etc. I have some questions, and maybe someone here can answer them.

    If we start going in the direction of applying VAT taxes in an effort to generate tax revenue, how broad could that go???

    Could food processing/canning be considered as “adding value” through preservation and canning of product?

    What about restaurants? If I go into a McDonald’s, order a Quarter Pounder w/cheese, when money exchanges hands, we have a contract for a final product that will be produced and provided to me, the consumer, right? Could the government define that there is “value added” via the SOP of making that burger?

    What about the service industry? The “final product” isn’t as tangible as it might be in an industry such as mfg. but it exists all the same. For example, suppose someone contracts with a computer engineering firm to develop a specialty software app for the business. Could the government define that there is “value added” in the process used to develop that app? Same for advertising and marketing.

    How broad could the government end up going with a BCT and/or VAT?

    • The mfg is self explanatory and I think like you say anybody with significant experience in mfg understands.

      I think the other things you mentioned are completely covered by the BCT. It says it is a subtraction style tax so a business takes total revenue and then subtract out goods and services purchased.

      I didn’t see on Ryan’s site any mention of exemptions for particular industries.

      So for food I would read that to mean even a farmer would be required to pay the BCT on the difference between total sales and his supplies and purchased services. This means if he hires his field plowed by a contractor he could subtract that cost but if he plowed himself he could not subtract his labor cost whether he did it or had an employee do it. His plowing contractor would however have to pay the tax if he did contract it out.

      On the services side it would mean a Chinese programming outfit would not have to pay the tax but an American outfit would have to pay it after subtracting out goods and services they themselves purchase.
      Given that Chinese or Indian programmers already work cheaper than Americans this adds an 8.5% additional incentive to send it over there.

      That is why it is so directly a tax on labor. After goods and services are subtracted what is left? Labor and profit. They already tax profit with Capital Gains. This means a tax even if there is no profit.

      Using your burger example I think it reads pretty clear. Subtract out goods and services from total sales and pay on that amount. So the value added would include the burger flipper.

      In a purely economic sense he is adding value to the burger, it has more value to you cooked than raw.

      Same with canning vs unpreserved. If it didn’t add value you would always buy raw veggies.

      The how broad answer I think is all of the way. It would still be IRS enforcement.

      • Thanks, rogue, and I appreciate the response. Everything I’d been able to find re: VATs was rather vague on how broad this could go (perhaps intentionally vague so as not to get the general public riled up about it). My own instincts have been “as broad as the gov’t wants to take it”, and your feedback confirms that to be about right in this case.

        • I’ve given up on being disappointed and feeling betrayed by the Republican Party. I take it as a given.

          I have been politically aware since Carter and I have never seen a Republican Party serious about limited government or lower taxes.

          Individual politicians yes but as a party they are all talk.

  7. No matter what tax plan gets passed, any tax preparation software will be a nightmare to implement.

    It will get to the point taxes will be 100% and we will be no better than slaves.

    Good job on the analysis Rogue.

Must Read