Home Budget, Economy Republicans Shout Down Discussion of VAT

Republicans Shout Down Discussion of VAT

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Recently, we’ve seen a lot of fulmination over a suggestion by former Fed Chairman (under both the Carter and Reagan administrations) Paul Volcker regarding the so-called “Value Added Tax” (VAT). According to Volcker, a VAT is an option that might be considered to close this country’s structural budget deficits. In brief, here’s the argument for a VAT tax.

Economists across the political spectrum argue that a VAT, which taxes spending rather than income, should at least be on the table when a commission appointed by Obama meets next week to craft a plan to reduce soaring budget deficits. Providing federal support to a vast wave of retiring baby boomers is almost certain to require higher taxes, budget experts say, and a VAT would be efficient and easy to collect and could raise significant revenue without imposing additional taxes on earnings.

Whatever your view of this argument, you’d think that an intelligent, serious, open, adult discussion of a VAT might be in the cards, particularly in light of this nation’s severe, long-term, structural budget deficit problem, and particularly in light of the fact that economists “across the political spectrum” think it’s an idea worth considering.

Well, think again.

…last week, in a tax-day speech on the Senate floor, Sen. John McCain (R-Ariz.) accused the Obama administration of having “floated the idea of” a VAT and called on his Senate colleagues to go “on record on this onerous new tax.”

Eighty-five senators voted for McCain’s amendment, which declared the VAT “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.”

Amazingly, 13 (courageous? foolish? both?) Senators actually voted “no” on McCain’s demagoguery.  Among those was our own Jim Webb, who has now come under attack – completely predictable, of course – by Virginia Republicans. According to RPV Chairman Pat Mullins, Jim Webb should “denounce” the VAT, which Mullins oh-so-subtly calls a “$1 trillion burden onto the backs of taxpayers.” Mullins also claims, implausibly, that “Webb put the wishes of his political party ahead of the people who sent him to Washington.”

I say “implausibly” because the Obama Administration has publicly ruled out a VAT, and because the vast majority of Senate Democrats voted for John McCain’s anti-VAT resolution. So, how is Webb, who took the politically courageous stand on this issue, putting the “wishes of his political party” ahead of anyone? As usual, the RPV makes no sense, beyond ratcheting up anger and generally foaming at the mouth.

In short, what we have here is yet more evidence that the RPV’s position on fiscal matters is completely non-serious.  Thus, the RPV rants that deficits – which, they conveniently ignore, skyrocketed under George W. Bush and a Republican Congress – are out of control, while taking every conceivable option to fix those deficits off the table, a priori. Sweet.

Unfortunately, what’s not so sweet is that our nation is facing severe fiscal challenges: an aging population, rapidly rising entitlement spending (Social Security and Medicare), but no political will to pay for any of it.  Here’s how a nonpartisan expert explains the sorry situation.

“We’re taking all the feasible, non-disastrous ways of dealing with our budget problems off the table,” said Leonard Burman, former director of the nonpartisan Tax Policy Center, who now teaches at Syracuse University. “We can’t cut Medicare. We can’t enact a VAT. We can’t raise any income taxes ever, except possibly on the 17 people who make over $1 billion a year.”

“Behind closed doors, almost everyone serious in Washington understands there’s a big problem,” Burman said. “But in public, basically if you say anything intelligent, you’re killed.”

Cue the Republicans, shouting down the mere thought of a “tax” of any kind, whether it’s on “value added,” energy, carbon, or anything else. In fairness, cue the Democrats to shout down any cuts to “entitlements.” The end result: stalemate, drift, deficits as far as the eye can see, and eventually a disastrous fiscal crisis facing our country. Sadly, that’s the state of our political system in the year 2010.

  • VA Blogger

    95% bashing Republicans, and a throwaway line at the end: “In fairness, cue the Democrats to shout down any cuts to “entitlements.”” Well done.

    I have no problems with Congressional Republicans shouting down the VAT. Sure, I believe that it will take tax increases to bring down the deficit, but until we’re ready to address Social Security and Medicare, what you put in unneccesary quotations as entitlements, then adding taxes is simply a way for the government to take more from the people to do whatever they want with it. I have no reason to trust that the proceeds from a VAT would go to reducing the deficit, nor do I have any reason to believe that the VAT on its own would make any significant impact on the deficit.

    That last point is especially true given how insolvent our massive entitlement programs are, and this is even before the effects of healthcare reform (the entire package, not just the cooked-up version scored by the CBO) are felt. Raising taxes alone would only treat the symptoms, not be a cure, and the symptoms would get increasingly worse every year, requiring larger and larger tax increases to actually accomplish anything.

  • jack

    The difference is in the visibility of the tax.  Most people know the sales tax rate — it’s printed on every receipt they get.  But most people DON’T know the gas tax, or the alcohol tax, or the cigarette tax rates.

    Also, I would want that sales tax to replace the income tax, not supplant it.  Tax income, or tax outgo; but taxing you coming AND going is just wrong.

  • WestEndVoter

    The VAT can easily be framed as the Republican “Fair Tax”, with a little bit of progressive tilt for the higher incomes.  Just give an income tax refund equal to paid VAT up to a certain tax level.  

    Another thing that should appeal to the Tea Party — a VAT is an effective way to tax people who evade income taxation, e.g., illegal aliens.  

    If you can convince mid- to lower income Democrats, Republicans, and Independents that VAT would lower their effective taxation, and that a VAT would allow the US to become more competitive in the world economy (e.g., our exports are subject to a VAT), it might be a little easier to sell.  

    As a first step, lose the term VAT.  It is a Fairness Tax, or something like that, which puts foreign exports on the same playing field as our exports.