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  • Guest Blogger: Rep. Leonard Lance (R-NJ) on the Value-Added Tax

    Congressman Leonard Lance (R-NJ)

    The presidential Commission on Fiscal Responsibility and Reform convened Tuesday at the White House to address what leaders of both parties agree is one of the greatest threats to the country’s economic future: the rising national debt.  Recently President Obama and members of his economic team voiced their support for a European-style value-added tax, or VAT, as one solution to our ever-growing 13 trillion dollar federal debt.  I flatly reject this suggestion.

    A tax-and-spend economic policy that includes a value-added tax is precisely the wrong medicine for our ailing economy and will do little to get our deficits under control over the long-term.

    Implementing a national VAT would add more taxes on to the shoulders of millions of working families that already feel they pay too much in federal taxes.  Just a little more than two weeks ago millions of Americans filed their annual federal income taxes.  In my home state of New Jersey, Garden State residents paid some of the Nation’s highest taxes. My constituents overwhelmingly believe that we pay too much — not too little — in federal taxes. The VAT is just another stealthy federal tax.

    What’s more, the value-added tax is a proven job-killer that would burden our economy at the worst possible time.  Leading economists predict that even a relatively small VAT of 3 percent could destroy up 2.1 million jobs by its fifth year of implementation.  Americans should look no further than Greece where its 19 percent VAT has contributed to that country’s economic turmoil where it sits on the brink of bankruptcy.

    As a member of the Congressional anti-VAT Caucus, I have called on Congress to speak in one voice in opposition to a value-added tax by introducing a resolution similar to Sen. John McCain’s anti-VAT resolution that passed the U.S. Senate recently by a vote of 84 to 13.

    The solution to our national debt is not more government revenue but less government spending.

    Since President Obama took office in January 2009 non-defense discretionary spending has increased by more than 84 percent.  While Congress and the President clearly must get serious about reducing our record debt and deficits, we must do so by cutting spending first, not adding more taxes onto the backs of the American taxpayers.

    Instead of proposing tax increases like a value-added tax to reduce our federal debt, the President’s commission should focus on reducing out-of-control federal spending as a way of addressing the growing size of the federal deficit and returning our nation to a path of fiscal responsibility.

    Congressman Leonard Lance is a member of the House anti-VAT Caucus, serves on the House Financial Services Committee and represents New Jersey’s Seventh Congressional District. For more information about Congressman Lance visit: lance.house.gov

    The views expressed by guest bloggers on the Foundry do not necessarily reflect the views of the Heritage Foundation.

    Posted in Economics [slideshow_deploy]

    14 Responses to Guest Blogger: Rep. Leonard Lance (R-NJ) on the Value-Added Tax

    1. A Man From District says:

      "The views expressed by guest bloggers on the Foundry do not necessarily reflect the views of the Heritage Foundation."

      WOW – THAT's an understatement. Lance was one of only six Republicans who voted for Cap and Trade. He consistently co-sponsor's bills by Barney Frank and NJ's liberal Adler. Lance has been awarded the "porker" award for reneging on his pledge against earmarks. He walked away from that pledge only 3 months after he was elected. He is a true blue liberal – a wolf in sheep's clothing. He needs to be voted out of office along with all the other liberals.

    2. J.C. Hughes, Texas says:

      Rep Lance stated “Since President Obama took office in January 2009 non-defense discretionary spending has increased by more than 84 percent.”

      I thought the percentage higher. Just the same, this type of spending proves congressional democrats and the president don’t have a clue about limited federal powers. Their indifference to our founders’ intent is pulling us ever closer to the proverbial straw that broke the camels back. Their unconstitutional progressiveness is effectively destroying our nation from within. Please work to stop these deranged democrats from pulling everyone down a path toward history’s known failures. These mad congressional ideologues may think differently, but they’re no better than those autocratic social engineers that plagued earlier civilizations.

    3. chatmandu says:

      I am afraid of congress and the administration trying to get a VAT tax as an add-on to the income tax. This would open up more avenues of money that the greedy congress would want to spend more to get re-elected.

    4. KSB, Texas says:

      Two big problems with a VAT are:

      a) Its lack of transparency.

      A VAT looks like a series of price increases as material flows down the manufacturing and retailing chain.

      b) Associated with the lack of transparency, is the legislative temptation to increase the VAT rates to pay for yet-another-program.

      The temptation is there because the legislature knows the rate increase is effectively hidden and thus probably unnoticed, and if noticed, it knows the producers and manufacturers will likely get the blame for higher prices.

      Philosophically, tax increases should always be an obvious-in-your-face event as that tends to temper their appeal to a legislature that is otherwise unwilling to restrain spending.

      "Quis custodiet ipsos custodes?"

    5. Greg says:

      Please keep fighting. We are Taxed Enough Already

    6. Daversity says:

      Out of Control Spending is a given– 90% of incumbents need to go, earmarks need to be eliminated, as they provide too great a temptation for moral (if not legal) corruption. ETC…

      But–how do we reform the American voters? If in fact, +40% no longer have Federal skin in the game, how can they make responsible votes that involve spending? The founders solved the problem by only allowing land-owners (taxpayers) to vote. Doesn't look like we will get that revision any time soon, so how do we change the dynamic so everyone has skin in the game again?

      A VAT would provide a basis for tax equity, and in an economically responsible Congress could provide the justification for tax code simplification that is long overdue and needed.

      The problem would be the enactment and the unfortunate propensity for Washington's policies to decide winners and losers. But that's essentially what the tax code does today to the detriment of "savers" under a VAT, at least the tax burden would be shifted to the consumers?

    7. JWinburne says:

      Rep. Vance's analysis and resulting conclusions illustrate the many reasons a VAT would not only be detrimental to our economy but also to our freedom of choice. We must oppose the Obama administration on the VAT tax issue at all costs. These people are constantly chipping away at the most important elements of our founding documents: our liberties,freedoms and the ability to influence our destiny.

    8. Drew Page, IL says:

      The Obama administration would love a VAT tax for 2 reasons:

      1. It generates a ton of revenue. A 1% VAT tax is projected to produce $1 trillion dollars of revenue over 10 years. that's only 1%. Greece has a 19% VAT.

      2. It isn't transparent. It is incorporated into the price of goods and services so inflated prices can be blamed on the providers of goods and services instead of on the government. You will never know how much of something's price is due to the VAT. Think about all the systems that go into the manufacture of an automobile (engine, transmission, electrical system, cooling system, computer system, etc.) Each system is made up of components. Each of these components is made up of materials that are subject to VAT when the materials are sold to the maker of the component; again, when the maker of the component sells it to the manufacturer of the system; again, when the company that integrates it into a system; again, when the manufacturer of the system sells it to the auto manufacturer; again, when the automakers sells the car to a dealer; and again when the dealer sells the car to you. Every little part of every car would be taxed over and over again, thoughout the manufacturing process, untill ultimately, it winds up in your hands. And when that same car that cost $25,000 is increased to $30,000 due to the VAT, you will hear the government threaten to launch an investigation into the predatory practices of the "greedy" automakers.

    9. Marilyn, Cardington, says:

      I would do what I do with my budget, quite spending.!!!!!

    10. Randy, Michigan says:

      We need good paying jobs so people can pay more taxes. As long as jobs keep going overseas and the remaining jobs pay less, government is just going to have to do with less revenue.

      Corporate CEO's could start hiring Americans again and building more plants here but I'm not going to hold my breath. American consumers would rather deal with higher unemployment than give up their $20 DVD players from Walmart.

    11. Norma Jean Onyschuk says:

      Obama speaks with forked tongue. He is a deceiver and a liar. How can you tell he's lying, is lips are moving. Is only interest is advancing his "Progressive Agenda" and growing government. We must reduce the size of government and stop spending money we do not have. Adding another tax of any kind is bad news. We are "taxed enough already".

    12. FrankM, NM says:

      Cutting Taxes – the most direct route to economic recovery… for both the individual and the corporation. Eliminate capital gains, estate, death, and income taxes.

      Freeze Spending – starting yesterday…

      Reduce the size of Federal Government across the board by 10% per year for the next three years… Start with Endowments for Arts & Humanities, Depts. of Education, Energy, Commerce, State, HUD, CDC… and of course Homeland…

      The UN payments can be cut – in half the first year, then half of that again the next year…. from 4 billion to 1 billion. Then ultimately reduced to 300 million dollars – $1 per citizen being paid out to this most highly unaccountable organization is rip off enough.

      Eliminate matching public funds for any and all candidates. Period.

    13. Don Lloyd says:

      I would like the Heritage Foundation to evaluate my concept of using retirement savings accounts to eliminate, over the next 40 years, ALL taxes based on income.

      It will allow Americans to spend all of their income on their family, save for retirement and live on the interest only during retirement, and then after death of both husband and wife the balance in the retirement account is converted to cash and "willed" to the State and the Federal Government.
      Thank you

    14. Matt N, NJ says:

      Actually, I'm a fan of the VAT in that it's an excellent way to tackle black market transactions. The system of tax, and credits in the value chain encourage compliance since it's only the end purchaser that actually pays the tax. A business just passes on the tax to the next buyer in the chain so it doesn't get built into prices per se and shows up much like a sales tax for the end purchaser.

      Right now we have a shadow economy where people and businesses have incentive to do cash transactions and keep income off the books and cheat. A VAT stops that behavior to some degree.

      I don't dispute that it's another tax, but its actually one that does a much better job, by way of it's structure, to keep people from cheating their honest neighbors.

      I also don't understand complaints there's a lack of transparency in the VAT – it's visible on the end purchasers invoice – in Europe and Canada, they cite the VAT percentage. This is much more transparent in cost than other taxes that business pay (like payroll taxes) that factor into their costs but don't show up as a "tax" anywhere.

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