No. of Recommendations: 21
Problem is, what has happened EVERY TIME that Federal taxes were increased, Congress increased spending as much or (usually) more than the additional tax.
I have also seen this happen in every one of the 3 states we have lived in. Colorado, Illinois, and my present state.
I don't feel like googling it, but I bet that the same thing has happened with VAT tax rates...
Well, in the US, the problem is that the tax system is sort of a 19th century design. It simply isn't capable of raising the tax needed without breaking some industries. The US desperately needs a national sales tax. I think Hong Kong is the largest economy, other than the US, without one. The modern world way of life that the US has adopted requires some money for old-school government goods like defence, and newer ones like pensions. That money is better raised mostly from taxes rather than from borrowing. In the US, the decision has been to move to the sorts of expenditures that voters want and absolutely will never give up, but simply to refuse to raise the tax to pay for them, borrowing the money instead. This is politically expedient, but as so many people have noticed, it can't go on forever. Debt can rise forever in real terms, but it can't rise faster than GDP forever.
As for VAT rates climbing, yes, they do tend to. New Zealand is another example of rising rates. That's because countries that introduce them rapidly realize that they really work: they raise huge amounts of money WITHOUT breaking the economy or impoverishing people, so taxes shift towards consumption taxes and away from other types of tax. The other reason is that introducing a national sales tax is political hurdle...easier to introduce a small rate and raise later than to introduce a big one at the start. In Canada the rate has vacillated a bit, but is now lower than when it was introduced (from 7% to 5%). The reason for the drop is partly populist political posturing, and partly because the money isn't needed as much: debt to GDP across all levels of government is half the level it was when it was introduced, largely because of the GST. Provincial taxes are on top, and vary. Note that Canadian long inflation-protected bonds yield are quite a bit lower than American ones: the finances have been in better shape and the economic management better, so the payment promises are considered more reliable and people are willing to pay more for them.
Turkeys don't like voting for Thanksgiving, and many voters are hesitant to back a new tax. But consider: would you like to have no income tax? Monaco has a high VAT rate, moderate corporate income tax for international companies based in Monaco, no personal income tax, no income tax on local businesses, and no property tax other than a hefty transaction tax and a small 1% tax on rent. The sales tax is the biggie, about half the budget as I recall. It works. It works despite the fact that a big chunk of the sales tax collected within Monaco is sent straight to France. Big countries bullying small ones isn't a new idea.
Jim
