New Tax Could Soon Be On The Horizon – This Is Going To Impact The Market
The Washington Post broke the story that House democrats may soon suggest a new value added tax that would be added on top of goods and services purchased in the United States. Along with an income tax, you’d also pay as much as 20% on top of any products you buy here in the states, a federal sales tax of sorts…
This will surely affect some businesses and companies more than others. High priced items like cars, boats, new houses etc could come with 20% higher prices as a result of the new tax. Gasoline and other items will also jump by an immediate 20%, putting a strain on the American consumer.
The government views the new tax as a two-fold benefit. First, it will reduce the amount of consumption taking place in the United States. You’re going to think twice about buying anything, especially at a 20% higher price. Second, its the only tax that the government can institute to raise the kind of money the government needs to finance its desired health care plan. Considering our economy is 70% consumption, this is going to bring in a TON of revenue. With GDP around $14 trillion per year, it could bring in as much as $2.8 trillion at 20%, granted there are going to be plenty of people who will spend less, not more.
If this should pass, you don’t want to be long anything retail. And you definitely don’t want to be in luxury brands. Even upper-income consumers are going to start shifting downward to save money, even more so in these tough times.
This is definitely something to watch. This proposal would have a huge affect on the spending patterns of Americans and affect our economy in a very big way.
Whoa, that sounds scary! I did some reading about the European VAT and saw that it’s 20%. An important thing to understand is that the tax doesn’t stack. That is, taxes paid by a retailer for its purchases (say, tools to manufacture the end product) are subtracted from the taxes payable to the government.
Still, if the U.S. introduces a VAT I sure hope they reduce (or eliminate) personal income taxes.
I love how the government’s solution to the problems with recession are by creating more taxes.