Tax Man


Paul Volcker, the former head of the Fed and an economic adviser to the Obama administration, says we should have higher taxes. Since no politicians ever seems willing to cut spending anymore, it makes sense that Obama will pursue a VAT, and other new taxes, to deal with the exploding debt.

In addition to Volcker, the head of the Senate Budget Committee, Kent Conrad (D-N.D), has mused that a VAT has “got to be on the table,” and Speaker of the House Nancy Pelosi (D-Calif.) has murmured sweet nothings about it. In fact, interest in a VAT is cropping up all along the ideological spectrum (albeit more often along the leftish end).

Charles Krauthammer warned a couple of weeks ago that the value added tax is inevitable given the spending of the Obama administration and the health care bill.

The case for a VAT is simple: The U.S. government’s fiscal gap is widening by the hour. The deficit for 2009 alone was a cool $1.4 trillion, and it’s projected to hit $1.6 trillion this year. By the end of the year, the Office of Management and Budget says the gross federal debt will stand at $13.8 trillion.

As Bruce Bartlett, a former Reagan economic advisor who supports a VAT, puts it, “The U.S. needs a money machine.” A VAT, because it touches every transaction, is just that: The Congressional Research Service estimates that each one percent of a value-added tax would raise $50 billion. That’s real money.

Given the anger in the country already, it’s hard to imagine people putting up with big new taxes. The general approach to new taxes is to start with class warfare, create new ones for the “rich” as Democrats have done with health care, then lower the thresholds after you’ve tricked voters into going along with taxing people who make more than them.

To be sure, no one expects a VAT to join the tax code this year or next. But what about by 2020? The odds narrow sharply. “There’s very little chance in the next few years,” says Brian Harris, a senior research associate at Brookings, a left-of-center think tank, “but a substantial chance in the next decade or so.” And Ryan Ellis, tax policy director at the right-of-center Americans for Tax Reform, who loathes the idea, says of the VAT, “I think it’s coming, in the next five to 10 years certainly.”

These are scary times.

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