I’ve spent the last few days trying to figure out the happy talk in the press about the recession bottoming out. The market’s been up, largely on the perception that consumer confidence is rising. But why is it rising? House prices continue to fall and foreclosures are through the roof. The government’s deeply in the hole and tax revenues are way down while the Fed continues to print money and monetize our debt. Oil prices are rising while most commodities are falling. And the banks are very, very fragile.
But leave it to the Democrats to do the one thing guaranteed to tank the economy. You guessed it, ladies and gentlemen, they want to pile on some taxes. And they don’t merely want to raise income tax rates on the highest earners, they also want to impose a tax never contemplated in the US: the Value Added Tax.
The VAT is a hugely regressive tax, applying to the sale of all goods and services. Britain, for instance, suffers under a VAT of 17.5% – on top of a steep income tax. But with income tax receipts tanking (down 34% over a year ago), the Dems need some new revenue. Of course, it would never occur to them to roll back the stimulus or Porkulus bills or trim the current federal budget. From today’s Washington Post:
With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.
Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.
At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.”
A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor.
As we’ve observed in previous posts, Congress turned a recession that began in October 1929 into the Great Depression. They did it by passing the Smoot-Hawley tariff and by raising taxes, particularly on the highest earners.
And now they want to repeat their 1930s success story with an entirely new, expensive and regressive tax.
Way to go, dummies.
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{ 3 comments… read them below or add one }
The article is wrong, a sales tax is not a VAT. A VAT taxes all consumption a single time while a sales tax, like those we have in the U.S., often result in disastrous tax pyramiding where taxes are paid on taxes.
Also, VAT’s come in two varieties. The first is the European subtractive VAT which is not the best form of VAT because of enormous business compliance costs. The best VAT is the additive VAT which is superbly represented in New Hampshire’s Business Enterprise Tax.
Only two VAT’s have ever been implemented in the U.S.–Michigan’s and New Hampshire’s. Michigan tried to follow the European model and it failed and has since been mostly repealed. New Hampshire’s BET has been a model of success for almost two decades.
Unfortunately, it sounds like the feds want to us to follow the European model from which we should heed the lesson from Michigan. And of course, they want it to be a net tax increase . . . this is most certainly not about tax reform. As with Maine’s debate on tax reform, they want to dress up the pig in tax reform garb to make the whole ruse easier to swallow.
Yes, the article is wrong – but I don’t expect the WP to know the difference. I also suspect that congressional Dems want to push us toward a European-VAT, which is complicated to administer (VAT compliance in the UK certainly is). As to New Hampshire’s BET, I think the folks who have to pay it would disagree with you about its success.
Not necessarily, when the BET was enacted it replaced a whole host of hated taxes on businesses on a revenue-neutral basis–I believe one of them was a business equipment tax of which Maine has only just now gotten around to eliminating (sort of). From a compliance/tax structure standpoint, it has certainly been a success. Of course, I’m always in favor of repealing any tax, good, bad or ugly, if it lowers my tax bill
But that is another issue altogether . . .