Yup, They're Talking About A VAT In Congress

Into the VAT
In prior editions of these Sound Of Cannons musings, I’ve mentioned that sooner or later, the financially pressed government would look to replenish its coffers by adopting a Value Added Tax (VAT) of the sort so favored by European nations.
Last week, the Wall Street Journal ran a story on this very topic, revealing that House Speaker Nancy Pelosi is seriously considering “going there.” The full text of the brief but important story follows…
Candor about taxes is rare in Washington, so when House Speaker Nancy Pelosi admits that Democrats may have to impose a huge new tax on the middle class to fund their spending ambitions, believe her.
Speaking with PBS's Charlie Rose on Monday, Mrs. Pelosi mused publicly about the rising possibility of enacting a value-added tax, or VAT, as part of broader tax reform. "Somewhere along the way, a value-added tax plays into this," she said. "Of course, we want to take down the health-care cost, that's one part of it. But in the scheme of things, I think it's fair to look at a value-added tax as well."
The allure of a VAT for politicians is that it applies to every level of production or service, rakes in piles of money, and is largely hidden from those who ultimately pay it—namely, consumers. With a $9 trillion 10-year budget deficit, $4 trillion in spending in fiscal 2010 alone, and a $1 trillion (at a minimum) health-care entitlement in the wings, Mrs. Pelosi knows that not even the revenue from the expiration of the lower Bush tax rates in 2011 will cover the bills. Nearly every European country that has passed national health care has also eventually imposed a VAT, and it's foolish to think the U.S. will be different.
Mrs. Pelosi is the second prominent Democrat to call for a VAT in recent weeks. John Podesta, an adviser to President Obama and president of the very liberal Center for American Progress, called in September for a "small and more progressive" VAT. Mrs. Pelosi and Mr. Podesta argue a new tax is necessary to address the nation's exploding financial liabilities, as if those liabilities exploded on their own. Of course, VATs always start "small" and get bigger. The bills for the Democratic spending blowout are coming due even sooner than advertised, and the middle class will pay, whatever Mr. Obama's campaign promises.
It’s hard to square the idea of adopting a VAT with Obama’s firm pledges not to raise taxes on the middle class by “one single penny.” Should his administration preside over the adoption of a VAT tax, it would unquestionably be seen in much the same light as the “Read my lips, no new taxes” pledge that, when broken, did so much to overthrow George Bush the First.
Unlike most progressive taxes, the VAT would be nearly impossible to rig in such a way that it would leave the masses untouched. Typically, to appeal to the masses, the government would set some sort of income test, under which you wouldn’t have to pay the toll. But that won’t work with VAT, because like kudzu, the tax winds itself through every level of economic activity. Detangling it in a politically acceptable way is simply impractical.
Of course, the administration and its congressional allies could try to pull this off by trying to position it as a tax on business, versus individuals. But I have to believe that line of reasoning would quickly be revealed for the scam it is. If businesses didn’t pass those taxes on to consumers, they would soon be out of business – it’s as simple as that. The Heritage Foundation has done some work on this and found that if VAT was instituted and allowed to rise to the levels now prevailing in Europe, the average American household would spend upwards of $10,000 a year on the tax.
What is amazing to me in all of these discussions about the government’s many grand schemes is that there is no substantive national discourse about the need to cut the cost of government itself. Why aren’t there any committee meetings with indignant congressmen pounding the podium about the soaring cost of government as an institution and the need for deep, deep cuts? The reason is straightforward: members of the political class – on both sides of the aisle – pursue their elected positions not for the betterment of society but for the attainment of personal power.
And that power goes hand in hand with longevity. Suggesting a reduction in the size of the government to a member of the government is like suggesting to a ship captain that they put to sea in a boat with a hole in the hull. Sure, they might make it out past the breakwater, but with the hold quickly filling up with negative votes related to cutting back services deemed essential, or merely desirable, to a large constituent group, the cruise is sure to end badly, and well before it reaches its destination.
And so, we are left with a bankrupt, ballooning government that will increasingly grab out in any and all directions to try and buttress its revenues.
According to The Hill, the timing being suggested by Pelosi for this latest coup against capitalism is after the healthcare bill has been passed, which looks increasingly likely from where I sit. While it is hard to imagine that they’ll be able to pull it off, they are sufficiently desperate that they may very well attempt it – coming up with all sorts of dubious spin to get it passed. Already I have read VAT discussed as being necessary to help pay for universal healthcare, and as a thing to look at as part of a major overhaul of the U.S. tax system. But in the end, it will probably be the “businesses needing to pay their fair share” that will lead the charge. After all, no one likes greedy business owners, right?
All of which raises the question, aren’t members of Congress supposed to represent the best interest of the citizenry in this democracy? If that is the case, how is it that they can even contemplate this sort of initiative?
At the risk of sounding like one of the right-wing talk show hosts that are so adroit at getting my blood boiling (over social issues – I tend to fall in line with their economic viewpoint), I would like to propose an amendment to the Constitution. Here it is:
“In order to vote, you must have paid income taxes in the previous year.”
Simple, easy, and sure to greatly reduce the sort of gallivanting socialism that occurs when the public at large can vote itself money out of public coffers.
Of course, I would prefer that no one had to pay any income tax, but as that is unlikely in the extreme, this new amendment would be a reasonable fallback. Without it, the productive elements of our society become little more than fattened cows for those who are not.
As it is, our representatives are free to sell out entrepreneurs and workers, in favor of votes from those who are neither. This is not a formula for a healthy economy – or a democracy, for that matter.