That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).Well, that's certainly depressing. But hey, you can't say I didn't warn you a few months ago (for some different, but mostly the same, reasons):
It’s the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.
American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.
Obama set out to be a consequential president, one on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes; then, ultimately, you have to reduce government spending.
Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.
And the VAT is the only trough in creation large enough.
As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.
Ultimately, even that won’t be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health-care rationing.
It will take a while to break the American populace to that idea. In the meantime, get ready for the VAT. Or start fighting it.
The White House and Congress are already pushing a huge tax on energy (through Cap and Trade) that would certainly decrease domestic consumption of energy-intensive products (especially if it includes carbon tariffs on imports of these goods). But Cap and Trade appears dead in the Senate this year, and the White House has already hinted that the legislation might need to be shelved so the administration can focus on deficit-reduction and jobs policies in 2010.Since I wrote that little piece of sunshine, the White House introduced its inevitably-ineffectual National Export Initiative, so any future VAT recommendation might be premised on "saving" both the federal budget and the fledgling NEI (with its silly goal to double exports in five years). Maybe not, but as the debt piles up and US exports don't spike, a serious VAT proposal becomes an increasingly plausible scenario.
On the other hand, several high level Democrats - including those inside the White House - are openly contemplating a Value-added Tax (VAT) on all domestic consumption. The VAT not only would significantly temper American consumption, but also would raise massive amounts of new revenue for the cash-strapped US government to pay down its debt (also mentioned in Obama's "strategy" speech) and/or finance major new government programs like trillion-dollar health care "reform." Finally, VATs are not collected on export sales, and any previous VAT paid on inputs used to make the exported product is typically refunded at the border. So exports gain new preferential status in the US economy under a VAT system. In sum, a VAT would be a classic three-fer for the Obama White House: discouraging US consumption, encouraging exports, and (sneakily) raising oodles of revenue for the federal government. Of course, whether it's actually good for economic growth is a totally different matter (hint: it isn't).
In this light, Obama's odd "Asia strategy" makes a lot more sense: he's essentially giving notice to China and other Asian economies that rely - at least in part - on American consumption that such consumption is going to be dramatically tempered by a new VAT - a policy that also will encourage US exports and help quell fears about an exploding US deficit and an imploding US dollar. Pillars #1 and #2 are just window dressing.
Of course, the President and his party could avoid all of this "rebalancing" nonsense and encourage strong US and Asian economic growth if they would just stop spending money that the United States doesn't have and lower taxes (particularly capital gains and payroll taxes), not raise them, to encourage savings, investment and hiring. But that's not how they roll (as the $2 trillion ObamaCare debacle and the President's $3 trillion budget make abundantly clear). Instead, they're scheming to find a new, secret way to confiscate lots of taxpayer money, discourage American consumption, and boost exports. Cripes.
So open your wallets, everyone. The VATman cometh. Let the "rebalancing" begin.
As Dr. K says, there's still time for the American people to fight this travesty and to prove us both wrong. Please, please do so.