News, Rants, and Other Incendiary Thoughts
Show MenuHide Menu

Volcker and the VAT

April 9, 2010

J.D. Foster of the Heritage Foundation examines the meaning behind Paul Volcker’s comments about a value-added tax (VAT) in the United States’ future:

President Obama’s push to enact a massive tax increase in the form of a new value-added tax (VAT) is now clearly underway. Earlier this week, Obama economic adviser and former Chairman of the Federal Reserve, Paul Volker said a “VAT should be on the table.”

White House claims that Volker was speaking as a private citizen simply do not pass the laugh test.  A senior statesman among economists, Volker is one of the president’s closest economic advisers.  No doubt Volker let the cat out of the bag prematurely from the White House’s perspective, but it is simply not credible to argue that Volker was not conveying the contents of White House thinking.  There can be little doubt now that the unspoken policy of the Obama administration is to pass a massive VAT tax hike.

This conclusion is further reinforced by the intense work being done all around Washington by liberal think tankers in preparation for the grand VAT push.  Even the Director of the Congressional Budget Office was quick to point out that the CBO is about to begin work on issues relating to a VAT.

It comes as no surprise that attention is now turning toward the VAT as the liberal solution for unsustainable deficits that threaten the stability and very future of our economy.  Having hiked spending dramatically and then doubling down with his ObamaCare, the nation now faces unprecedented near-term debts as the clock ticks toward the long-recognized entitlements time bomb.  If there’s one thing conservatives and liberals agree on completely, it’s that deficits of this magnitude cannot persist.  Credit markets won’t allow it.  Some fundamental course correction is certain.  The massive amount of revenue a VAT could raise is the only acceptable solution left for most liberals since they steadfastly refuse to reverse course on their recently enacted spending binge.

Why is the VAT the darling of the left?  Because it can raise vast new revenues without the taxpayers being really sure who took their money.  Consumers would pay the tax when they purchase goods and services.  Buy a car, pay the tax.  Buy groceries, pay the tax.  Buy chemotherapy drugs, pay the tax. In this way, taxpayers would only be aware of a bit of their tax bite with each purchase.  And unless the tax is printed on the receipt and they look for it, consumers would have no idea how much tax they paid on a particular transaction.

Today’s deficits, and tomorrow’s, result from too much spending, not too little revenue.  Reverse the massive Obama spending surge (and the Bush surge before that) and the deficits would quickly fall to sustainable levels.  Instead, Paul Volker has done the nation a great service in telling us what Obama and his congressional allies are planning.   If that is not the case, if the President and the democratic leadership in Congress really are not planning a VAT attack, let them declare their opposition to a VAT plainly.  Every current and would-be member of Congress should say where they stand on the VAT.   And unless they favor a huge government, much higher taxes, and less transparency from government, they will stand against it.

Larry Kudlow of CNBC also decries the VAT and it’s implications:

The last thing we need right now is more tax hikes. There are a dozen new tax hikes already squirreled away inside President Obama’s health-care law. Medicare payroll taxes are going to be imposed on capital gains and dividends. Investor taxes are going way up when the Bush tax cuts expire at the end of this year. And to top it all off, half the states in the country are raising taxes.

Look, if you think for a one moment that spendthrift politicians in Washington won’t treat higher tax revenues as their very own honey pot, think again.

That’s exactly what this crowd will do.

If you give these guys one more nickel of tax revenue, they won’t use it to cut the deficit, they’ll spend it. They can’t help themselves. It’s why, rather than tax hikes, we need emergency-style, sharp-edged, across-the-board spending cuts everywhere in the federal government. And I mean everywhere. We’re talking government programs, departments, agencies, worker pay.

You name it, slash it all.

And if you think we can tax our way into prosperity or a balanced budget, you’re wrong again. It doesn’t work. Just look at the tax-happy Europeans, who haven’t created a new private job in over two decades.

Half the people in this country don’t pay the income tax, and of the ones that do, the top 10 percent pays a staggering 70 percent of it. Meanwhile, the top 1 percent of income earners shoulders 40 percent of the overall tax burden. And now, on top of all that, Mr. Volcker wants to tax consumers and producers throughout the production and consumption chain with a VAT?

This is nuts. Absolutely nuts.

As Kudlow mentions, nearly half the country does not even pay federal income taxes, and in fact some folks actually “make a profit”:

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

Leave a Reply

Your email address will not be published. Required fields are marked *