Another Advocate for a VAT

Nationally syndicated columnist Froma Harrop has penned a recent article championing her very own "Five Commandments of Tax Reform".

In general, the article makes the familiar arguments in favor of steeply higher levels of tax. In particular, the author's view on the desirability of a national VAT are worth pointing out.

"The middle class shall pay something: You can understand why Democrats would limit new tax increases to upper-income folk, who enjoyed enormous tax cuts during the George W. Bush era. A correction was in order.

But eventually everyone must pitch in. Politicians can't go on telling the middle class that it can enjoy new entitlements, and keep the ones it has, without paying more taxes.

The difficulty of getting this message across makes the VAT (value-added tax) a righteous idea. A kind of national sales tax, the VAT is considered regressive because the poor also pay it. But the social programs these taxes fund are progressive."

Ms. Harrop vastly overestimates the public's willingness to pay a VAT in order to continue to be "lavished" with the benefits of various government programs and entitlements.

Most Americans were and are opposed to the government's recent efforts to muscle in on health care. So they hardly would agree to a massive tax increase in order to pay for it.

Although the adoption of a VAT might be the current holy grail for central planners and their champions in the mainstream media, there is no support for the VAT from the people who would actually be footing the bill.

Paul Volcker Advocates Tax Hikes, VAT

President Obama's advisor Paul Volcker today said that the U.S. should consider raising taxes and implementing a value-added tax.

"Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.

Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. "If at the end of the day we need to raise taxes, we should raise taxes," he said."

This is what's known in political circles as floating a trial balloon.

And if anyone has the bona fides to broach the subject, it's the man who as Federal Reserve Chairman in the late 70's and early 80's made the unpopular but ultimately successful move to choke off inflation by mercilessly raising interest rates.

But Volcker is out to lunch if he thinks installing a VAT would somehow be receptively received today.

Is he really serious in believing that, in the face of a massive recession and with sky-high unemployment, Americans are going to willingly pay an extra 15% or more for the goods they buy, in addition to all of the federal and state taxes they already pay?!?

It would certainly be one thing if the proposal was to scrap federal income taxes in favor of a national VAT.

But the Obama Administration is sending signals that they want Americans to pay both forms of taxes.

Obama and other Democratic politicians should start packing their bags and brace themselves for upcoming election defeats if they believe moving this proposal forward is actually going to fly with Americans.

The Case for a Consumption Tax

Connecticut Senate candidate Peter Schiff makes the case that tax revenues should be raised solely by taxes on spending, not from taxes on income.

"We should protect ourselves from Washington: you do not grow an economy by spending, you grow it by saving investing and working hard."

The basic argument made here is that taxing income discourages work and savings, and since work and savings are the true engines of a healthy economy, taxing income creates an unhealthy drag on the economy.

In practical terms and to have the full support of Americans, a tax on spending would come in the form of a federal sales tax (or VAT), which would have to replace (and not be in addition to) the existing system that taxes income.

In order to be revenue neutral, it's possible that in fully moving to a sales tax, the sales tax rate would have to be upwards of 30% or 40%. A rate this high would likely be politically impossible and simply not feasible.

Therefore, moving the federal tax system to a VAT with (say) a 10% rate would be an excellent start to reducing the size and reach of the federal government. Protections would then have to be put in place (perhaps as a Constitutional amendment, including a repeal of the 16th Amendment) to prevent that rate from being increased in future years at the whim of an elected Congress.

Tax Hike on the Table in the UK

Politicians in the UK are starting to give consideration to raising the VAT (sales tax) rate, from 17.5% to 20%.

"A rise in VAT is looming whichever party wins the general election, as Labour and the Conservatives draw up plans to balance Britain’s books.

Alistair Darling and George Osborne, the Shadow Chancellor, are both considering raising VAT to as high as 20 per cent — the European average — from the current rate of 17.5 per cent, The Times has learnt."

Why is it that politicians think that raising taxes (initial estimates are £13 billion in this case) is just what a faltering economy needs? And don't think this is something that won't or can't happen in the States - there are many proposals being considered that would do just that.

Instead of raising the VAT rate, cutting the VAT rate would allow citizens to keep more of their own hard-earned money, and enable them to either spend, save, or invest it, which in any case would enable it to be directed in a much more rational, moral, and economically efficient manner.

Columnists' Weak Attempt to Justify a VAT

Shawn Tully, a senior editor at Fortune magazine, unhelpfully and unconvincingly inserts himself into the ongoing fiscal debate:

"The gigantic deficits the Administration is projecting are appalling, and they provide a chilling look at our future: America is hurtling towards a fiscal trap that is forcing us into the only option we'll have to restore budgetary sanity: A Value-Added Tax."

Seriously, a VAT is our only option at this point?!?

Shawn, here's what most Americans want to see you write about...a column on ways the government can reduce spending!

Let's face it: the day any non-Left Wing member of Congress (read: Pelosi and like-minded friends) sides with the VAT proponents and lends support to this tax-raising cause is the day they should start working diligently on their post-Congressional work plans. There's no way they would survive their next election challenge.