Posted on 04/12/2010 4:53:42 AM PDT by IbJensen
Former Federal Reserve Chairman Paul Volcker sent up a trial balloon at the New York Historical Society April 6 when he said that a Value-Added Tax (VAT) needed to be considered in light of the huge deficits facing the country. According to Volcker, the VAT is “not as toxic an idea” as many have considered it to be in the past, and “if at the end of the day we need to raise taxes, we should raise taxes.”
He wasn’t the first one to float this recently. Charles Krauthammer wrote late last month that “as the night follows the day, the VAT cometh" and that “a national sales tax near-universal in Europe is inevitable.” Because of the huge deficits facing the nation, exacerbated by the newly passed ObamaCare bill, there is no way out except to raise taxes, according to Krauthammer. Present entitlements like Social Security can be trimmed through salami-slicing: raising taxes on the front end, and delaying payments on the back end. But other potential cost savings in Medicare and Medicaid have already been pre-empted under the fuzzy math of Obamacare, which counted the cuts that haven’t been made in those programs yet as a way to make that law appear “revenue-neutral.”
Krauthammer writes:
Obama set out to be a consequential president, on the order of Ronald Reagan. With the VAT [in place], Obama’s triumph will be complete. He will have succeeded in reversing Reaganism.
Liberals have long complained that Reagan's strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes - then ultimately you have to reduce government spending.
Obama's strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation.
Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.
And the VAT is the only trough in creation large enough.
The VAT is a national sales tax that is applied at each step of production. Obviously, such a tax can generate gigantic sums of money for the government. And it has many advantages to politicians. The collection costs are borne by businesses, not by the government. It is difficult to escape through normal tax evasion strategies and would force the 50 percent of people in the poor and middle classes who pay no income taxes at present to start to contribute to the ever-increasing costs of the nanny state. And its enactment could be accomplished during a lame-duck session of Congress following the November elections and before the new Congress is sworn in. Brit Hume of Fox News said, “You could hardly get [the VAT] through the Congress right now, but you might be able to slip it through after the [November] election.”
As an aside, commentator Dick Morris just predicted that in November “a sweep of unimaginable proportions is in the offing … [and that] Republicans will gain more than 50 House seats and at least 10 in the Senate, enough to take control of both Houses.” That increases the likelihood that a lame-duck session would try to enact a VAT, prior to the new Congress being seated next year.
Although Fed Chair Ben Bernanke briefly mentioned the VAT in a passing comment in his comments to Congress, the Obama administration is officially distancing itself from consideration of a VAT, at least fo. “Mr. Volcker was speaking for himself and not [for] the administration,” according to a White House spokesman. “The President has not proposed the idea, nor is it under consideration.” Any such denial is of course suspect.
Opposition to such consideration is coming from various places, including the office of Senator Chuck Grassley (R.-Iowa) which said that “Volcker was expressing what the administration was [in fact] considering: enacting a VAT to cover [its] excessive spending.” He said, “Chairman Volcker is giving an unvarnished assessment of where the administration feels it must go. To make up for the largest levels of spending and deficits in modern history, the administration is laying the foundation for a large, misguided new tax, a first-time American VAT.” Grassley noted that such a new tax “would only be a cover-up for the government’s inability to do what every responsible American household does, and that is to live within their means.”
The Heritage Foundation said that installation of a VAT “would devastate families and business, kill jobs, and hammer the economy. The problem is not declining revenues, but rather a spending spree unlike any in American history.”
Back in 1972, Austrian economist Murray Rothbard was asked about the VAT:
Well, it's a national sales tax. It is one thing that has not been tapped yet. I think Chodorov said that the principle of taxation that the government always uses is the same principle as the highwayman: Grab them where they are — if it moves, tax it! If you can find something that hasn't been taxed yet, well, tax it. VAT is a new gimmick which hasn't been imposed yet in the United States....
It's a sales tax, so it will tax the poor more than the wealthy. Also, it's a hidden tax, so the public wouldn't realize it. It's a value added tax which is paid by each manufacturer as they go down the list....
It will also bring about vertical integration — mergers — which the government claims are monopolistic. If the thing turns over it means that you pay an extra tax, but if the two firms merge they won't have to pay any tax on that phase of it. So, it will encourage mergers.
The writer at the Baltimore Sun asked the question: “What’s wrong with this tax?” He answered: “We can begin with the fact that it is the very essence of a regressive tax in that it makes people with lesser incomes pay a far higher percentage of what they have under it than do people with higher incomes. Also ... this is the tax that beyond all others provides the fuel for government gigantism, in part because it is hidden in the price of goods.” (Emphasis added.)
It is clear that the VAT would be added onto the many layers of existing taxes levied directly and indirectly on the American consumer. And the amount of new monies to expand further the government into private affairs is massive. Fox News said: “Just think: a 10% VAT would produce 1 Trillion [with a T] in revenues. Cash register sounds go off in the minds of every leftist that hears it.”
John F. McManus, President of The John Birch Society, said a VAT “would place more burdens on our nation’s already overburdened businesses and industries because of its requirement for [additional] bookkeeping … another expense that would surely grow in time.
And Ryan Ellis, writing for Americans for Tax Reform, said:
During the campaign, President Obama said he didn't want to raise "any form" of taxes on families making less than $250,000 per year. He has spent all year trying to get around that promise with his healthcare plan. Now it appears that liberals in Washington are working to build momentum behind a new value-added tax (VAT) on everything we buy. Most recently, House Speaker Nancy Pelosi said that a European-style VAT is "on the table."
So on top of your income tax, your payroll tax, your property taxes, and your state sales taxes, Obama and friends want to slap on a new VAT tax. This would be a brand new tax on everything you buy. Worst of all, you wouldn't even see it (except in the form of higher prices), so politicians will jack up the rate like they have in Europe. It's all part of the Left's plan to permanently [fund the continued expansion of] the size of the federal government.
The underlying false assumption with so much of the current discussion about a VAT is that “the beast must be fed.” If Dick Morris is correct about November, and if the gathering influence of the limited government, pro-Constitutionalist Tea Partiers can pull it off, putting the beast on a diet is more than just a dream. It can instead be the beginning of the new American freedom from the beast.
I cannot imagine the VAT getting passed in this country even with this administration and congress. Even more so with elections around the corner. Still vigilance is a watchword here. Even the tiniest of VAT will be the beginning of the end.
A non-value added tax makes more sense. I someone is paid to do nothing productive of goods and services, their tax rate should be, oh, double that of actual contributors to the GNP. At the top of such a list...lawyers, governemnt bureaucrats?
American’s will continue this dash to socialism if the good people of this country do not stand up and fight those who would destroy her!
It's DUCK SEASON!..................
Is the Pope Catholic?
I am flabbergasted that an economist like Volcker doesn't know this!
Furthermore, Obama had his shot with a stimulus plan. Instead of making a real investment in the economy, he chose to squander it on projects that create no lasting jobs.
Instead of using the stimulus money to (metaphorically, of course) buy fishing tackle for those parts of the economy that can most quickly put it to good use, he lavished his constituents (union members and the needy) with quickly-consumed fish sandwiches.
Same cost, completely different long-term effect.
The end of your post is spot on, but I can easily see this administration pushing through a VAT, especially in a lame-duck session after a ton of donkeys have been sent packing. Obama’s set the scene with his rigged budget commission, and he’ll try to dupe enough fiscally-responsible Republicans into supporting a (initially small) VAT to ram it through.
But you’re exactly right in that vigilance is the watchword. We must demand of every congressional candidate that they’ll not support a VAT, EVEN IF it’s the primary recommendation of Obama’s budget commission (which it will be).
That commission will be an attempt to give the Congress cover, and we need to short-circuit the VAT option now - before the election - otherwise it will start to build momentum directly after it.
I always describe the VAT as the crack cocaine of statist expropriators - it raises tons of money, and it’s essentially completely hidden. Once introduced it will be raised over and over again as the donkeys crowd at the trough.
Quote Barry the closet Muslim while perpetrating his fraud health care bill.
Amen Brother.
the VAT is “not as toxic an idea” as many have considered it to be
Neither is a 20% reduction in spending.
Walmart, kmart, target, Bass Pro, Sears, Macy’s,, goodbye. One of the first things you’ll hear is that sales and discounts will have to go, cause they rob the gov’t of revenue,,,,Dollar Store,, you
too!!!!!! We beter ger rid of these queer-bait RATS and soon!!!!
Oh, yeah, no doubt. Apologies for those who have read my rants before but I can't scream this loud and far enough!!
Nothing, nothing, NOTHING costs a dollar here in Sweden. The VAT is 25 percent. There is no Walmart, no Target...no impulse buying. No "fun" shopping. You buy only what you need.
“the VAT is “not as toxic an idea” as many have considered it to be”
Oh it’s plenty toxic alright. If you either have european friends or have traveled in europe you know that a modest car such as a VW that here in the U.S. has a MSRP of say $25,000 has a sticker of $50,000. Same magnitude of order with appliances, furniture, you name it. Consequently, the fall out of the VAT in europe is an underground economy that is about 35% of GDP. One postulate that you can count on is if taxes are deemed to be fair and reasonable by the tax paying population they generally will be voluntarily paid. However, once the tax base crosses into what is considered to by unfair and unreasonable by those who pay then all sorts of avoidance techniques will by implemented to protect one’s hard earned wealth. There is only one good thing I see that could come of the VAT here in the U.S. and it’s this - a VAT is a very regressive tax and thereby those who voted for Obama and thought they thereby were going to get to feed for free at the government trough for all sorts of government benefits will be hit the hardest. I plead guilty to taking some pleasure in the prospect of this....
Cut spending to reign in deficits.
A tax on prosperity. Very bad idea.
We'll all be driving down to Mexico to shop, us lucky enough to live close enough. Ofcourse we'll have to wear kevlar vests.
You can bet that in very little time the left will propose a VAT rebate for the poor. You can count on that.
Firing half the federal workforce and renegotiating the terms of employment for those remaining is what makes more sense.
When it comes to taxes, I say don't give an inch. And, in fact, *take* several feet.
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