James Pethokoukis has a rather alarming column adding up signs that Obama may propose a European-style Value Added Tax. All trial-balloon tea-leaf reading at this stage, but at a minimum he definitely identifies a coordinated groundswell among people with the Administration’s ear.
A VAT is arguably not as bad as our current system in terms of economic incentives, but (1) it’s more insidious politically – people feel the pain of income taxes directly, so they’re harder to raise; and (2) it’s likely that if Obama did push a VAT, it would be in addition to the taxes we already have. Pethokoukis thinks such a proposal could be an opportunity for the Right to crack open a broader discussion on reform:
Obama wants a VAT? First, it should be part of broader tax reform, including getting rid of capital gains and corporate taxes. Second, it should accompany an Economic Bill of Rights much like Ronald Reagan used to suggest. Its elements: a) a balanced budget amendment, b) a line-item veto, c) a spending limit such as inflation plus population growth, d) and a two-thirds vote in the House and Senate for any tax increases. (Reagan also wanted a prohibition on wage and price controls. That would likely kill ObamaCare.)
Well, it’s a nice idea, not that any of that would get done under the current alignment, and not that, say, a balanced budget amendment would even necessarily be a good idea in practice. As he notes, Obama’s tax pledges in the long run are unlikely to fare any better than his infamous and wholly insincere promise of a net reduction in federal spending:
Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. It’s the economic “consensus” – and this was true even before the financial meltdown and recession – that rising entitlement costs would eventually mean a higher tax burden for the American people.
Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans.