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Volcker’s Volley: The VAT Battle Begins

Posted By J.D. Foster, Ph.D. On April 9, 2010 @ 2:00 pm In Economics | Comments Disabled

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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 Volcker said a “VAT should be on the table.” [2]

White House claims that Volcker was speaking as a private citizen simply do not pass the laugh test.  A senior statesman among economists, Volcker is one of the president’s closest economic advisers.  No doubt Volcker let the cat out of the bag prematurely from the White House’s perspective, but it is simply not credible to argue that Volcker 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 [3].

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 Volcker 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.


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URL to article: http://blog.heritage.org/2010/04/09/volcker%e2%80%99s-volley-the-vat-battle-begins/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/Volker.jpg

[2] Paul Volcker said a “VAT should be on the table.”: http://online.wsj.com/article/SB10001424052702303720604575170320672253834.html?mod=WSJ_Opinion_AboveLEFTTop

[3] the CBO is about to begin work on issues relating to a VAT: http://content.usatoday.com/communities/theoval/post/2010/04/presidents-panel-may-consider-vat-tax/1

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