VAT of Trouble

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.

8 thoughts on “VAT of Trouble”

  1. The “Fair Tax” would be a much better solution than a VAT. The Fair Tax rewards saving and completely does away with personal income tax as well corporate taxes as well as social security taxes. It would allow all workers to take home their entire earned pay. The national sales tax that is associated with the Fair Tax allows the consumer to decide what taxes they are willing to pay.
    Additionally, The fair tax proposal that has been introduced also rebates to each household the amount that is determined to be the poverty level. This is intended to insure lower income households are not over-burdened by the sales tax, but it also treats every household the same way…FAIRLY!!!!!

  2. Berto, if we do that who is going to create jobs? I don’t know about you, but I haven’t created any this week.

  3. The government will create the jobs, maddirishman. Because the state knows what is best for us; it knows what jobs our economy needs. It’s efficient, too!
    While Obama’s tax ideas are disgusting, they are nothing new. Both parties are taxing parties and have been for decades. They just have slightly different ideas about how much is too much.

  4. Not the wealthy, who were given a huge tax break from W, but still couldn’t provide enough jobs for the American people.
    Here’s an idea. Pass Universal HealthCare. Citizens will quit their shitty jobs en masse, since they will no longer be tied to these shitty jobs because they need healthcare for little Jimmy. Instead, they will start their own small businesses.
    Everyone knows how much Conservatives support small businesses. They go on and on about it all the time.
    Let me know the next problem you want me to solve.

  5. Um, Berto, maybe the tax “breaks” weren’t large enough. Ever think of that? Cut the highest bracket to 20% (or better yet, eliminate income taxes), cut the corporate rate in half, adjust government spending to balance the “breaks” (as you call them) and you won’t believe the jobs that are created.

  6. Maybe, but St. Ronald Reagan says the good old days were when corporations paid 40+% of the national tax burden (it’s now less than 15%).
    Are you calling the venerated Ronald Reagan a liar?
    Also, Crank and pals are getting the vapors over the thought there might be an additional nickel added to the deficit (yet call for un-ending war for vanity purposes–so we won’t look weak). You ready to take them on?

  7. Honestly, I’m fine with a VAT. But it could only come with comprehensive tax reform. I’m shocked to see him bring it up. I’m not shocked, because Bush’s tax reform council brought up the same thing.
    Higher short term (Honestly, I’m fine with a VAT. But it could only come with comprehensive tax reform. I’m shocked to see him bring it up. I’m not shocked, because Bush’s tax reform council brought up the same thing.
    Higher short term (<1month) capital gains, lower long term. Income tax changes. Increased gas tax. Much lower FICA, both employee and employer side. Large unmoving personal deductions, and simple brackets.
    As an add on, horrible.
    Since tax reform can never happen - too much lobbyist money goes to supporting it, and too many loud noises would be made by either side's extremists (whoever is in charge) - I'd be amazed.
    CATO had a piece on this, I think 10 years ago - it pretty much says while VAT can be made as insidious.
    "The "Fair Tax""
    Fair Tax is crazy. Ability to go underground, sparse incentives for states to collect (let alone incentives for states not to collect), so many other problems. It's just a gateway for dissolving the federal government, and I wish people were honest about it.
    And that's without the dishonesty around how too many people say 23% when everyone who deals with sales taxes know it as 40%.

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