NEW YORK (Fortune) -- It's highly possible, if not inevitable, that Americans will soon live under a radically different tax system - one that the pundits and politicians aren't talking about.
It's called a value-added tax, or VAT, and it's been used for decades to pay the bills and sustain the immense growth of governments around the world, from France to Mexico to Australia. Created in 1954 by a French economist, the VAT is the most potent, efficient machine for revenue generation yet invented.
And if there's one thing the U.S. government needs as the federal budget balloons, it's a ton of new revenue. "The bottom line is that the income tax cannot support the level of spending that's projected, something other countries faced years ago," said
Roberton Williams of the Tax Policy Center, a non-partisan research institute. Today the VAT raises almost half of the total government revenue in France, and a similar share in most of the developed world.
The VAT is essentially a sales tax, except that it's charged at each stage in the development of a product instead of at the moment when the product is sold.
Take, for instance, a car with a sticker price of $30,000 and a value-added rate of 10%. Ford might buy its steel and other materials for $8,000 plus $800 in a VAT tax. A dealer then pays $25,000 plus a $2,500 tax for the finished vehicle. Ford takes an $800 credit for the tax it already paid and sends $1,700 to the government. A buyer then pays $30,000 for the SUV and $3,000 in taxes. The dealer collects the $3,000, takes a credit for the $2,500 worth of taxes already paid, and sends $500 to tax authorities. Ultimately, the government pockets $3,000, or 10% of the retail price of the car, in taxes.
The genius of the VAT is that, while the consumer pays it, the actual cash is mostly collected from producers before it reaches the retailer. Since the VAT is essentially a hidden charge embedded in the price of goods and services, raising the VAT doesn't arouse nearly the uproar caused by increasing income taxes.
The ease with which a VAT can be increased points to one of its big drawbacks: Governments see it as an easy way to pay for increased spending, which is a potential drag on economic growth.
Even so, the VAT would be better than the other likely alternative: A higher retail sales tax. If the national sales tax were raised to, say, 20%, consumers would cheat by paying cash to avoid it, and retailers would submit because they'd sell more goods by cutting the price 20%. With the VAT, every step of the manufacturing (and tax collection) process is documented.
Make no mistake: A VAT may be unavoidable in the United States. The reason is that spending is rising far faster than the revenue that can conceivably be generated by the current tax regime.
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Let's examine the numbers. Under our current tax system, receipts are projected to remain pretty flat, at about 18% to 20% of GDP, far into the future. But spending is slated to rise to 24% of GDP in 2030 and 28% in 2050, excluding interest on the federal debt. If taxes aren't increased enormously, future deficits, and the enormous borrowing they require, will swamp the budget with ruinous interest costs.
Today, the income tax raises around $1.1 trillion, or around 9% of GDP, with payroll and corporate taxes contributing the balance. The deficit now stands at around $580 billion, including the Social Security surplus that's helping to pay the bills. But that surplus is also rapidly disappearing. So to balance the budget, America would need to raise income taxes by 53%, assuming the other taxes remained at current rates.
The gap gets far larger in the future, chiefly due to rapidly rising costs of Medicare and Medicaid. To pay for those costs, we'd need to raise taxes by an extra 2% of GDP. That would require an additional $270 billion in income taxes.
All told, that's a total tax increase of $870 billion, or almost 80%. That's not including the estimated $240 billion cost of President-elect Barack
Obama's healthcare plan through 2018.
The rub is that the fiscal pillar America has relied on since 1913 - the federal income tax - can't possibly support the looming new era of spending. All economists agree that when top income tax rates get too high, Americans will work, save and invest less. Tax collections would increase far more slowly than rates, and eventually level off completely.
The VAT may be the only answer. "We're moving towards European levels of spending," said Andrew
Biggs, an economist at the American Enterprise Institute "If you go there, you need a more efficient way to raise revenue."
But the VAT, on top of encouraging bigger government budgets, has another problem: Middle class taxpayers would be hit harder by a VAT because they spend more of their income on goods like clothing and cars than high-earners. That's especially distressing to Obama and Democrats, who have pledged to make the tax system far more progressive by raising rates for the wealthiest Americans.
One partial solution would be to exempt staples such as food, gasoline or fuel oil from the VAT and impose extra-high charges on yachts and jewelry. To help middle-class taxpayers, the federal government could also send subsidies to tens of millions of taxpayers based on their incomes. The French, for example, mail checks to families depending on how many children they have.
But given the nature of politics, said
Biggs, "the problem is that those rebates might be tied to some social agenda, not to making the system fair."
European governments have typically seen VAT hikes as an easy way to raise revenues during a recession. In some countries, government spending is more than 50% of national income. The results have been fiscal stability, but lackluster growth and a dearth of dynamism and entrepreneurship.
Given the budget numbers, the United States has already chosen a path of far bigger government. The trap has been set. It's unlikely America can escape without a VAT.
First Published: December 2, 2008: 6:32 AM ET
Find your way down Front Street on Stock Island and before you reach the gates of the power plant stop! And eat fish. There is plenty of parking on the dead end, light industrial street, even though some important people get their own spaces:
I was in town for my weekly class at the college, my wife got a proper lunch break today (the girls were looking for Santa at the airport I believe) and we went off for lunch. "The new place!" my wife announced her choice and so it was. Actually the fish market opened a while ago, even though the eatery part is a bit newer. This is no frills cuisine, with fresh fish on offer up front for take away as it were:
Yesterday they had shrimp and scallops and a few of these guys on offer, fresh off the boat:
It is not a piece of hyperbole to say "fresh off the boat" even though it's used so much by so many restaurants it is a phrase that has become a cliche. Not here; these are the docks:
And here's the boat, ready to tie up and unload your lunch:
And if you want to know which boat your lunch did come off, why, here's a list:
Which if my math is any good spells something like 106,500 pounds of Key West pink shrimp landed yesterday. Which is probably more than most people could eat at one sitting. However if one happened to order a $14 shrimp and lobster Philly sandwich it might come to the outdoor table looking something like this:
An outdoor table you say, in December? Well yes it is rough following in the wake of a particularly cold front that blew through. Though the sun was out in force and afternoon temperatures were up in the mid seventies (25C). The interior of Fishbusterz is all business, and the business is that of landing and preparing fish for market not offering frou frou seating arrangements for diners. This is the real thing, a fish house :
This is the restaurant business no frills style:
And if the dude taking the order looks more like a fisherman than a maitre d' that's more than likely because he is:
Dining with attitude:
I hate the word "authentic" because every time I see it used it's a synonym for "fake" but at Fishbusterz you are eating fish among fishermen and this is their land. The picnic tables are outside on the dock:
And there's a constant stream of burly men in white rubber boots trundling back and forth doing manly seaman like things with hoses and buckets and all things fishy:
Fishbusterz is a bit of a local miracle. A fish house owner got it together to buy this corner of Safe Harbor and provide dockage for fishing boats, an ice house and an outlet for the fish, both wholesale and retail. This is supposed to be a working waterfront that will be here forever, and even though forever is a very long time it seems likely that as long as there are commercial fishermen this small corner will be here for them in a world that has been changing too fast to support their industry. Even if the food was crap that would be reason enough to come and shop at Fishbusterz. However the food is exquisite which is an absurd adjective for a place as rough-and-ready as this, but I know what we will have next time we drop in:
They don't just chase the fish and cook it when caught, they have someone on staff who can paint with a piece of chalk. Pretty amazing really. And the views are pleasing on a hot winter afternoon:
It's been a rough week one way and another, with a colleague committing suicide and a memorial service to deal with tomorrow, but sitting on the dock watching life go on in the Keys, as basic and true as ever, it's a healthy reminder that there is a lot to live for, and taking pleasure in something as simple as a plate of fish, be it ever so cliched, is a fine thing. I wish Keith were around for me to encourage him to go and try Fishbusterz, because it is well worth it.
Really. Sit, eat and contemplate, and may your thoughts be more cheerful than mine at the moment.
The San Juans are astonishing lumps of land filled with a continent's worth of geography, forests, mountains, bodies of water, winding roads that stretch further in the imagination than they do on the ground. Their residents are of the woolly hatted variety, hardy and unfazed by drizzle and gray skies. And there's the rub: gray skies. Washington State gets bad press for having too much rain. I have found in my visits that Seattle is too frequently gray and overcast, not wet necessarily. 
The Keys offer what is not on tap elsewhere, and that is milder temperatures and more sunshine surrounded by accessible salt water. One wouldn't put up with the lack of topographic variety if the sun weren't shining. The absence of lakes, rivers, hills, forests or even deserts would make the islands highly undesirable were it not for the climate. Perennial sun, always around the corner if not actually shining, makes it easy to forgive the fabulous Florida Keys their monotony.
That perceived monotony attracts people of a certain ilk. Explorers need not apply for residence. Travelers come and live and take off and travel, but not many people live in the islands to explore the islands. I find it astonishing how many people say there is nothing to do in the Keys. They lack money or the will to own a boat and remain land bound. They live in Key West to avoid the dreaded commute. They walk or cycle and circle the rock, rarely leaving and only driving up the Keys under pressure.
I suppose it makes little sense to be a hiker and to choose to live where it's flat and the best views are snatched from the tops of bridges. Mountain bikers need not apply. Walkers will see endless miles of identical shrubbery, bush after spindly bush of mangroves, mostly impassable. Anglers will rejoice, fans of downhill skiing would cringe.
I like wandering the Keys, I enjoy getting to know the islands outside Key West, a city that offers plenty especially in relation to it's size but it is neither the be-all nor the end-all of life in the Keys. Perhaps for me the Keys retain value as destinations in and of themselves as I have washed up after spending decades in endless pursuit of the horizon. Seeking out the minor variants provides a more durable satisfaction when one knows there is nothing left to prove. I take pleasure in being if not doing all the time.
It was about a year ago, in the heart of the dread "holiday season" that I met a visiting long distance motorcyclist regaling a Christmas party with tales of derring-do on the road with his huge long distance motorcycle. He remarked that on his last visit he had rented a scooter for a week's stay and barely managed to put 60 miles on the machine. "There was nowhere to go!" he laughed, contemptuous of someone who could live restricted within these narrow boundaries. I could put 60 miles on in a day because there is everywhere to go.
Island living requires some adjustments and living in the Lower Keys is much closer to being on a true island than one might at first imagine. When it takes two hours to reach a fork in the highway one has to think twice before taking off for the mainland. Effectively it takes as long, if not longer than getting ashore from Friday Harbor in the San Juan's. It was especially true in the brief period of four-and-a-half dollar gas that the mainland seemed so far away, separated not only by time and distance (100 miles from my house) but also suddenly we were separated by the dollar cost of the trip to Homestead. 
I roll out my bicycle most days for a ride and each trip is a reminder of some place in a prior life, rolling silently through neighborhoods or past mangrove mazes my mind is free to wander, to fix the problems of the world, to contemplate why this or why that. A ride through Key West can be a pleasure too but suburbia is serenity of a different order of magnitude. I found an empty television box by the side of the road on the Torch Keys and it made me think of the decrepitude of civilization that the prophets of gloom offer up constantly. We'll be television-less and pedalling for our lives, and they tell us happier for it, which seems dubious to me:
One of my small town pleasure sis checking the Citizen of the Day photograph in the Citizen newspaper. They don't seem to pick wildly articulate or thought provoking citizens but perhaps if they did it would ruin the artless flavor of the daily photo. Invariably (almost invariably!) they remark on the weather as the primary reason they came to the Keys, and continue living in the Keys. Conchs cite family as their primary reason. Fishing or boating come close seconds. Exploring is never on the list though using a bicycle as primary transportation does come up from time to time.
I recall a comment from Sal in New York remarking how his Bonneville is better off than mine because he gets to ride in it's natural habitat, curvy mountain roads whereas my poor thing grinds long straight miles day after day. He is right, but in my head I am riding all the curves I've ever ridden, yesterday Corsica, today Umbria, tomorrow the Atlas mountains or perhaps the Sierra Nevada. It's all in the mind.
The Bonneville may look like its parked in Key West, but in my head as I sit smiling and sipping coffee at the White Street Deli, La Poderosa may be getting ready for a ride to Ushuaia. Or to Fort Zachary Taylor to stare out at the turquoise waters. And the weather really is great, no matter how little land or curiosity or variety there may appear to be in the southernmost peninsula islands.
The US Postal Service is an institution I have long admired. Which puts me in a decided minority in the US, a nation that makes a national sport of mocking the postal system. I guess you have to have lived elsewhere to appreciate the USPS and its customer service attitude. These days the mails are transported by a semi-autonomous branch of the US government. As far as I can tell that means the postal service has to deliver the mails and not lose money because none will be forthcoming from the Federal Budget. I guess they will declare themselves a bank if they end up needing a cash infusion.
Key West has two post offices, a nondescript hole in the wall next to Winn Dixie in New Town and the main post office a splendid brick structure whose official address is 400 Whitehead Street, but it actually exists in park-like grounds wedged between Eaton, Whitehead and Fleming Streets:
The rear of the Post Office nudges up against the Truman Annex and its where the big trucks load up with the mails and haul them up to Homestead to be sorted. The weird thing is that of you post a letter to Cudjoe Key, 33042, which is served by the Summerland Key Post Office, the letter will go to Homestead for sorting and will come back down the next day for delivery, covering 200 miles to go 25...Whatever works I guess.
When I'm at work we often get calls from people living in islands ten or more miles up the Keys, convinced they do live in the city when they are far outside city limits. That's because their address reflects the fact they are served by this post office and are considered to be part of zip code 33040- the city of Key West.
When I used to live on sailboats the first thing I did when I settled in a city was to get a PO Box, it was my way of establishing residence and getting settled. In Santa Cruz, California, in 1983 there was a wait for a box as I recall, and I felt I had arrived when I got my slot in the main post office.
In St Petersburg when I got a slip at the city marina in Demen's Landing I was enchanted to discover my little brass box lived al fresco in an indoor-outdoor post office. Key West has a similar arrangement:
The fenced walkway around the front of the post office is usually open, but there are shutters that can be lowered ( in case of heavy weather of course):
This a post office subjected to massive rains too so the gutters and downspouts are solid. Too bad they aren't directed into some sort of receptacle to store the rainwater:
The post office has a light airy feel, its a place weirdly enough I enjoy visiting just for the hell of it. The parking lot is vast, and it has chickens too, but human visitors are strictly regulated of course:
The post office parking lot is very convenient to downtown and the postal employees get testy when people park there in the day and don't use the facilities, so cars do end up getting towed. After hours though it's a different story. There used to be a parking lot attendant at night who took money to let people park and boy, he was as mean as a snake. I never used to go anywhere near him. Now he's gone and someone else will have to claim the title of meanest person in Old Town.
That last picture I took on a night time lunch break, last winter. Always pretty the post office on Whitehead Street.