A Taxing Question

As the new administration in Washington struggles to stimulate the U.S. and world economies, it may want to heed the findings of a UK business group. The Council of British Industries, the UK's leading business group, denounced the government's decision to cut the value-added tax--the equivalent of a national sales tax--from 17.5 percent to 15 percent as a failure. The group said the cut has not stimulated consumer spending or halted reductions in overall spending. As a result, the government finds itself even more short of needed funds at a time when more government spending is viewed as one of the quickest ways to jump-start the economy. For us, the reduction in the VAT is welcome. Along with the weakness of the pound, it makes our U.S. dollars stretch farther. But I can't say we would buy any less to save the 2.5 percent of the purchase cost. VAT is actually an intriguing concept because its invisible. It is built into the price as opposed to added on to the price as sales tax is. You don't even notice it, really. However, its very invisibility probably makes its reduction an unlikely candidate as an economic stimulus. It always makes it tricky to discover if the reduction is really being passed along or whether the retailer is pocketing the savings--something most retails are prominently promising through signage not to do, but how would you ever really really know?