Virtue and the Value Added Tax

Consumption, if you listen to the mainstream economic press, has become a necessity. 

Consumption is around 70% of the economy of the United States so any reduction of that consumption results in the loss of jobs.  Most of the criticisms of Quantitative Easing 2 has revolved around the fact that it will not get money into the hands of consumers who would then spend the money on goods and services which would then create, we are told, jobs.  Such is the contemporary paradigm anyway.

Yet I do not know a single person who, having thought about the issue, does not mourn the amount of waste and garbage in our society.  Right, Left, Republican, Democrat, environmentalist or Tea-Bagger; they all mourn our throw-away society where items are often shoddily made and unable to be fixed, even if there is a desire to do so.  Planned obsolescence has seized our economic models from IPods to washing machines.  We have developed a culture that disdains the old and values the new.  We have even been trained to rejoice when a thing breaks for we have been given the opportunity to replace it with a newer model.  At some level we are all guilty but I have yet to meet a person who thinks of this cultural development as a virtue; even if not all think it a vice.

Practical minded men and women will tell us this is the way that it has to be, because this is the way that it is now.  I cannot help but wonder, however, there might be the opportunity for something better in the future.

At this moment in history the federal government is funded by the taxing of income.  While some states and municipalities have a sales tax there is no national sales tax.  The result is that the tax system creates an obstacle to the creation of personal wealth, by taxing it but studiously avoids creating any obstacle to spending.  It is, perhaps, a trick of the brain that after working hard to earn money it is made easy to spend.

A Value Added Tax (VAT), in lieu of our current income tax system, would encourage work (since it would no longer be taxed) and discourage spending (since it would become more expensive).  I am under no illusions that cultural trends can be changed abruptly but this would have the effect of encouraging people to fix items that otherwise might be thrown away, creating a market incentive for companies to produce products which are capable of being repaired.  As a case in point, I am notorious for loosing things, especially small things.  Yet I notice even I am able to keep track of a pen if I both like it but, more importantly, have also spent more for it than a cheap disposable plastic pen which I picked up cheaply. 

In discouraging spending we would also expect to see an impact in the cultural attitude toward the issue of saving for the future.  Again, it would take some time but in disincentivizing spending Americans would be more prone to first use their new found wealth to pay down debt (which would not incur a tax since the item had been purchased in the past) which could later become a propensity to save.

There are some obstacles to this proposal.  It may very well be necessary to repeal the 16th Amendment to the Constitution of the United States in order to convince those of us who do not trust the Federal Government to truly replace rather than augment the income tax with a new VAT.  There is also the unfair effect such a change would have on the retired and other savers who have already paid an income tax on the money they have saved and will, effectively, have it taxed a second time when ever they are ready to spend it.  We will also need to see changes in the organization of our economy.  We will need fewer retailers sand more fix-it-men, fewer Marketing Majors and more mechanics.

There is no quick solution to the problems of the vice we mourn or an easy way to build virtue we would like to claim.  Neither can be had without a cost.  The conversation we need to be having is if we are willing to embrace the change necessary to make our children and grandchildren better people, living in a stronger culture, taking for granted skills that we do not yet have and confused by a historical reports of our present, a present in which we too well understand and are embarrassed by.  They will benefit if we demonstrate the freedom of mind necessary to resist those who are stuck in what is and envision what is not yet.