According to Neil Cavuto of Fox Business News today, our current Congressional Democratic Leadership has started a whispering campaign to test the waters for a possible 20% VAT tax (value-added tax) on all goods and services sold in the US.  This comes on the heels of a planned Cap and Trade tax program designed to drive the United States off carbon based power sources over the next 20 years.  Here is yet again a devastating tax that crosses all demographic lines, regressive in the extreme, and one which penalizes innovation and production by impairing already weakened consumer and small business segments.

Many do not understand the original general concept of Value Added Taxes.  They were supposed to tax the incremental value added to a product as it went through each stage of production and distribution.   European models were created that “simplified” the accounting burden, by putting the entire burden on the end consumer, with a one-time tax on the sale price of the product.  That was never part of the original design of VAT taxation.  Instead, this rumor proposes an entirely new bastardization of VAT concepts.

We have a brief period to stop this initiative, or we will have to wait for the mid-term Congressional Elections in 2010 to throw these clowns out on their pointed heads.  I certainly would not want to be running for re-election if I signed this proposed bill.  I would expect rotten tomatoes to be thrown at me, in a best case scenario.  Harry Reid is in the run of his life, and he knows the current administration’s policies aren’t helping him.

If you add the plan for Cap and Trade Taxes of the Waxman bill (which he admits he has not read) to this, it will mean a certain shut down of all but the most imperative consumption for a decade, if not more.  It will completely shift business planning away from a first concern for innovation and job creation to one of managing taxes.  The market weighed in with its opinion on such an idea, with a resounding implosion.  Combined with three bad auctions driving T Bonds to recent record yields today, the Dow was down over 170 points.

This came on the heels of Secretary Geithner’s ill-timed announcement that Banks would not be allowed to return any un-needed TARP funds until their compensation plans had been approved.  This ruling smacks of wage and price controls both, neither having been seen in decades.  The rules seem to be created based on each day’s current expediency, rather than a real drive to re-start our business credit and job creation engines.

China reacted today with the first genuine concern I have heard expressed by them regarding specifics.  They want to be reassured that their debts owed them by the US will be honored.  They see monstrous deficits into the foreseeable future, rash monetary policy potentially devaluing the dollar, and a disrespect paid to both production and consumption engines.  They know what would happen in China if the American Consumer pulls out.  China would first implode inwardly, then explode outwardly, like the explosive collapse of a White Dwarf into a Black Hole, then blast into a kind of Supernova.

As I have said before, I don’t think this is one we would win.  I am reminded of the Einstein quote about the Third World War being waged with nuclear weapons, and the Fourth World War being waged with sticks and stones.  The army with the biggest number of sticks and stones will win, and frankly, no matter what we do, China will outnumber us at a huge level.

I have been repeatedly concerned about over-population.  If that is the problem I think it is, then this is the only short term cure.  North Korea may ring the bell here, and if they do, our Congress is not ready for the re-criminations.  Neither is our President.