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Seven Days: A VAT of Nonsense

OPB, the evening of Friday, May 30, 2003 -- They did it, again.  Stephanie Fowler (OPB), Bill Lunch (OSU/OPB), John Schrage (Willy Week), was it Steve Law of the Salem Statesperson Journal? and some other journalist whose name and newspaper I didnít catch.  Anyway, they discussed Oregonís financial situation.  The second half of the program was about how government employees are retiring in droves to make sure they nail down their present PERS situation.   OSU, Lunchís sinecure, has lost a number of professors to that. 

But the first half was about taxes.  The budget.  Where will the money come from?  The voice of smaller, more efficient, better prioritized government was not heard in the show, except in the form of offhand, jocular comments about the intractable forces of evil Ė Republican conservatives.  (The real ones are now so few in number that they are within two seats of becoming eligible for protection under the Endangered Species Act.)

Of general interest to this group was (though they did not say it in these words), ďHow are we and our big-spending, big-government friends in the legislature going to enact heavy tax increases that the public wonít notice?" (Except for Multnomah and one or two other heroically socialist counties, higher taxes aren't faring well in Oregon, these days.)

Of specific interest to hostess, Stephanie Fowler, was a VAT.  What, you ask, is a VAT?  The letters stand for Value Added Tax.  It is a very popular form of bleeding money from economies in danger of thriving in Europe.  (It also has a bad effect on tourism, so if you go to the EU from here, you can file for a rebate as a foreigner.) Here in the U.S., Michigan, a very liberal state, has one.  It is losing supporters on a daily basis, and the present debate about it centers on either reducing the taxable base to which it refers or dumping the complicated thing entirely.. (I am reminded of the early Nineties New England luxury tax, which is a VAT that is supposed to screw only the rich.  It  drove yacht buyers offshore.  When the region's boatbuilding industry, a major source of skilled and unskilled blue collar jobs, began to collapse, the Democrats in congress backed up faster than Bill Clinton from a blue dress.)

Itís a kind of invisible sales tax. 

For example, letís say that the proposed Oregon VAT included food within its scope.  And, let's further assume that  you live in Portland and like to eat from time to time.  One day, you notice that you are hungry.  Now, after federal income tax, state income tax and the new Multnomah County income tax, you have exactly enough money left to buy a package of cheap hotdogs for dinner.  After the introduction of the Value Added Tax, you wonít.  (Have enough to buy the hotdogs.) 

This is because the VAT is a tax on those hotdogs that, unlike a regular sales tax, is enacted before the hotdogs get to the checkout counter. (Spiritually, anyway.)  So whatís the difference between a sales tax and a Value Added Tax, you ask?  Nothing.  Except, of course that the VAT sales tax isn't called a sales tax.  .

The truth about business taxes.  (They don't exist.) 

You start a grocery store.  The building costs a grand a month, the display shelves and freezers cost a grand a month, the checkout counters cost a grand a month, the checkout people cost a grand a month, the light bill is a grand a month and the wholesale cost of the foods you offer is a grand a month.

Now, that is six grand a month in business costs.  Where will you get the six grand a month to pay it?  Of course! You will set the prices of the food so that when it is all sold, you will have six grand  in your checkout cash registers!  (Excellent thinking.  You were born for business.)

But, then, the legislature puts a Value Added Tax on everything you sell.  It  comes to a grand a month.  Added to your other costs, that means your expenses are now seven grand a month and your income is six.  You will go broke if you donít come up with another grand a month.

Where can you get it?

Should you sell your home and put a grand a month into your grocery store until all the money is gone, and then close the doors and go on welfare?  That doesnít sound very good.  Well, what about going to a bank and borrowing a grand a month?  The bank wonít do it.   They say the money they have to lend comes from the savings of their customers.  If you canít pay them back because your grocery store is losing money, then they won't have any money for their depositers when they want to withdraw it.  It would be stupid for them to give you money when they know you canít pay them back.

Whatís left then?

Of course.  There is only one way.  Raise the prices of your groceries enough to cover that grand a month for the Value Added Tax, too.

What's a "fair share?"

When you think about it, this is a very smart thing for the liberals to do.  With this VAT, the people see the price of their food going up, and blame the grocery store for being greedy, and not caring about the customers. 

Miss Fowler next asked if businesses in Oregon are paying their fair share of taxes.  The consensus at the table was that Oregon far undertaxes most companies.  Now that you understand how business works, and know that every penny a business is taxed is paid by its customers, how do you feel about taxing business?

If you rent your home, letís raise your landlordís property taxes.
If you want to buy a new car, letís raise taxes on automobile dealers.
If you want to buy a new pair of shoes, letís raise taxes on shoe stores.

Since business taxes are all of the "pass the buck" variety, guess who will pay the increased taxes in every case.  Right.  The guy at the end of the line.  The one who can't pass the buck.  The civilian.  In a word, you.

I have a hunch that some of you out there are beginning to smell a rat.  For the first time in your life, you are beginning to understand that people who want to tax business may have something else in mind.  They may know how all this actually works. They may see business as a kind of second Internal Revenue Service for government -- an invisible national sales tax collection agency.  An excellent way to transfer money from your pocket to the government pocket without you being aware of it.  And, come to think of it, the taxes a company pays comes out of the same pot as your paycheck.  Of all the crazy things, this means that you are paying to have your salary held down.

Stupid media.

Obviously, there are politicians who understand what you have just learned.  But, what about the press?  Do they get it? 

There they are, sitting around that Seven Days table.  Major Oregon newspaper and broadcast journalists and political science professor, Bill Lunch.  Do they know about this?  Nope. Not one of them has the faintest idea where businesses get the money to pay their bills, including their tax bills.   Not one of them is aware that a business which is paying its ďfair shareĒof taxes is getting every dime from its customers.  From cans of creamed corn to a ticket to the movies to the paintbrush you just bought at Home Depot, the guy who is paying the corporate taxes is you.

Hard to believe they wouldn't know this, isn't it?

But, they don't. These people, these Ďexpertsí that Oregon Public Broadcasting has put on the air to explain things to you, these stars of the Oregon media, are totally in the dark.  Like inspector Clouseau, when it comes to the money that flows through a business, they havenít a clue.  They think a VAT will sock it to Oregon businesses and leave you, the little guy who they believe they defend and love, untouched.  These people who constantly talk about ways to "increase consumer spending," are for business taxes that increase consumer prices!  This means, of course, that a Value Added Tax actually decreases the value of the item taxed. (Higher cost for the same product.) An accurate name for it would be Value Subtracted Tax.

They are actually that stupid. 

If they werenít that stupid, it would mean that they know the truth, but don't want you to understand it. We expect that sort of thing from the New York Times, but not from our own Oregon media.  They wouldn't lie to every member of their audience.

It has to be because they are stupid.

© 2003 Oregon Magazine

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