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Out of Money? Value-Added Tax Next Up

Posted By Curtis Dubay On May 27, 2009 @ 1:12 pm In Economics | Comments Disabled

Massive increases of spending by the Obama Administration, from the stimulus to its proposed budget, have created historically unprecedented large deficits that will push the nation’s debt level to unsustainable levels. [1]

It was only a matter of time before the proponents of big government began their push to substantially increase the amount of revenue raised by the federal government to close these budget gaps and pay for other big-government priorities like nationalized healthcare.

The tax hike proposals offered so far—such as taxes on sugary drinks or tax hikes on alcoholic beverages—would not raise anywhere near enough revenue to make even a tiny dent in projected deficits.

And President Obama has made it impossible to get the revenue from the income tax because of his constraint that taxes cannot be raised on anyone making under $250,000 (even though he has already broken this pledge). There is just not enough income of the rich to squeeze to pay for all this spending.

That leaves something akin to a national sales tax as the only option.

Enter the Value Added Tax (VAT). From today’s Washington Post: [2]

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.

A VAT is levied on the “value added” to goods and services as they pass through each stage of the production process, but the cost is ultimately passed on to the consumer. And unless otherwise required by law, the cost of this tax is embedded in prices and hidden from consumers.
A VAT would be a disaster for the U.S. economy. As explained in the Heritage Foundation Backgrounder “Beware the Value-Added Tax” [3], a VAT would:

  • expand the size of government;
  • inadvertently increase income tax rates; and
  • slow economic growth and destroy jobs.

Congress and the Obama Administration should focus on cutting spending and reforming entitlement programs to make them sustainable in the long-term [4] instead of expanding the size of government and badly damaging the economy and destroying jobs in the process.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/05/27/out-of-money-value-added-tax-next-up/

URLs in this post:

[1] historically unprecedented large deficits that will push the nation’s debt level to unsustainable levels.: http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1

[2] today’s Washington Post:: http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909_pf.html

[3] As explained in the Heritage Foundation Backgrounder “Beware the Value-Added Tax”: http://www.heritage.org/Research/Taxes/bg1852.cfm

[4] reforming entitlement programs to make them sustainable in the long-term: http://www.heritage.org/Research/Budget/sr0043.cfm

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