April 8, 2010

Acknowledging it would be a highly unpopular move, White House economic adviser Paul Volcker said yesterday the United States should consider imposing a "value added tax" similar to those charged in Europe to help get the deficit under control.

A VAT is a national sales tax that, like state and city sales taxes, would be collected by retailers.

At the New-York Historical Society, Volcker told a panel on the global financial crisis that Congress might also have to consider new taxes on carbon and energy.

A White House official was asked for comment on Volcker's statements and he said: "The President has passed historic tax cuts for middle-class families and continues to push for more tax cuts. The President is not proposing to cut the deficit at the expense of middle-class families."

Just how long the so-calLed tax cuts for the middle class will last depends on how much those cuts will be absorbed by Healthcare Insurance, the proposed Cap and Trade bill and now the VAT.

The VAT suggestion was immediately met with outrage by Republicans.

Brian Walsh, a spokesman for the National Republican Senatorial Campaign Committee said that this shouldn't surprise anyone that the Obama White House would advocate a European-style tax to help finance their European-style government health-care plan. He told a news source, "when you hear things like this, though, it's almost as if the Democrats think the American people will forget that we're in this situation because of their reckless spending agenda."

Volcker, you may remember, is a former chairman of the Federal Reserve, serving first under Jimmy Carter, then reappointed in 1983 by Ronald Reagan.  He was quoted telling the global economic panel that a VAT is "not as toxic an idea as it has been in the past."

He added, "If, at the end of the day, we need to raise taxes, we should raise taxes."

The value added tax has long had backing from House Speaker Nancy Pelosi who last year said it is "on the table" for dealing with the country's fiscal woes.

Some say the tax can be a good way to raise money because -- depending on how it's imposed -- the burden does not have to fall on the consumer alone.

A VAT can also be imposed down the line on manufacturers, producers and any other business that adds value -- as well as retailers. Presumably, each could be asked to pay a smaller amount, since the burden would be spread out.

Also, since the government would be collecting at each step of the manufacturing process, if a retailer cheated, the taxman wouldn't be left completely in the cold, because levies would have been collected at earlier steps leading up to the sale.

A major reason the tax is so hated is that it does not eliminate sales taxes, but is charged on top of them. Critics say that it is a quick way for governments to raise cash, but the tax could wind up being a burden on the poor.

Milton Friedman used to say “Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay.” This won't be the case with a VAT because everybody pays! As long as you buy anything, it will be taxed.

So far, though, Democrats have yet to figure out how to tax drinking water and air, although many restaurants are charging for water and adding that on to the bill that is subjected to sales taxes. As for air, well, Obama's healthcare insurance mandate for all Americans should take care of that because if there is life in your body (i.e. you are breathing) you have to buy insurance.

Progressive-Socialists in Congress have suggested a VAT as a temporary measure to control the deficit and pay down on the debt. Some have even suggested that the VAT or a National Sales Tax be made temporary, twenty or twenty-five years and then expire.  We all know how temporary programs usually play out -- they never expire.

For instance, The Spanish-American War was fought in 1898 and lasted less than eight months, but Americans still pay an excise tax on phone service that was imposed to finance it. Back in 2006, a mere 108 years after the end of that conflict, the Bush Administration moved to terminate the levy. It didn't make it out of committee in the House. Its duration is something to keep in mind the next time you hear a politician call for a “temporary” tax.

The VAT idea has percolated in Washington over the years, but lawmakers have always resisted it.

The US budget deficit is expected to reach $1.5 trillion in fiscal 2010. Should all Americans be made responsible to pay down on the massive nanny-state spending the Progressive-Socialists have cooked up to help those become more dependent on government?  Just remember, if the VAT comes, it will never be repealed!