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Reject the Value-Added Tax, Rein in Spending Instead

Posted By Brian Riedl On May 27, 2009 @ 1:26 pm In Ongoing Priorities | Comments Disabled

The Washington Post today ran an article [1] on the possibility of lawmakers enacting a value-added tax (VAT) to pay for soaring government spending. A VAT is basically a national sales tax, and the possible 25 percent tax rate floated in the article would raise the cost of virtually all goods and services by 25 percent. It would devastate families and businesses, kill jobs, and hammer the economy.

VAT proponents take continued runaway spending for granted, leaving only the issue of how to extract the necessary tax dollars from working Americans. Nonsense. Real federal spending remained steady at $21,000 per household throughout the 1980s and 1990s, before President Bush hiked it to $25,000 per household. Now, President Obama has a proposed a budget that would permanently spend a staggering $32,000 per household annually – and that’s before all the baby boomers retire and add another $10,000 per household in Social Security, Medicare, and Medicare costs to the bottom line.

So the problem is not declining revenues, but rather a spending spree unlike any in American history. If Washington insists on spending $32,000 per household [2], it will have to tax $32,000 per household – an unaffordable and unfair tax burden regardless what kind of tax collects it.

Rather than tax America into permanent economic stagnation, President Obama and Congress must rein in runaway federal spending. Simply bringing real federal spending back to the $21,000 per household average that prevailed in the 1980s and 1990s would balance the budget by 2012 without raising a single tax on anyone. Even returning spending to the pre-recession level of 20 percent of GDP would eliminate two-thirds of the projected 2019 budget deficit without raising taxes.

How can this be done? First, stop digging: no more unaffordable government expansions. Then, grab the low-hanging fruit [3], such as $17 billion spent annually on earmarks, $25 billion spent on unused federal property, and $123 billion spent on programs for which government auditors can find no evidence of success.

Next, lawmakers should implement larger reforms: Require that the president’s $17 billion in “budget cuts” [4] go towards deficit reduction rather than new spending. Rescind all remaining unspent “stimulus” dollars after the recession ends. Eliminate farm subsidies [5] for large and profitable agribusinesses, which actually worsen the farm economy, and other forms of corporate welfare. Devolve [6] functions like highways, economic development, education, housing, and antipoverty programs to state and local governments that are closest to the people. This would eliminate the expensive Washington middleman.

Finally, lawmakers must address the unsustainable growth of Social Security and Medicare [7]. A logical place to start would be inflation-indexing Social Security benefits for upper-income seniors, and to stop over-subsidizing the Medicare B and D premiums for upper-income seniors.

The United States finds itself at a crossroads. Lawmakers can push spending – and taxes – to $32,000 per household, thereby burying families, businesses, and the economy in a painful European-style [8] economic hole, or they can make the difficult but necessary decisions to return the size of government to its 1980s and 1990s level. Instead of asking how they can best tax Americans, lawmakers should take responsibility for the escalating spending trends that have put the nation in this difficult position.


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/reject-the-value-added-tax-rein-in-spending-instead/

URLs in this post:

[1] article: http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909_pf.html

[2] $32,000 per household: http://www.heritage.org/Research/Budget/bg2249.cfm

[3] low-hanging fruit: http://www.heritage.org/Research/Taxes/upload/FederalSpendingByTheNumbers2008.pdf

[4] $17 billion in “budget cuts”: http://www.heritage.org/Research/Budget/wm2427.cfm

[5] Eliminate farm subsidies: http://www.heritage.org/Research/Agriculture/bg2043.cfm

[6] Devolve: http://www.heritage.org/Research/Budget/bg1733.cfm

[7] address the unsustainable growth of Social Security and Medicare: http://www.heritage.org/Research/Budget/bg2114.cfm

[8] European-style: http://www.heritage.org/research/budget/bg1831.cfm

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