It wasn’t too long ago that Paul Volcker suggested the idea of imposing a value added tax (VAT) on Americans. Because cutting spending is really quite a ridiculous idea. Since then, the White House talking heads have been denying the White House is seeking a VAT.
Then President Obama spoke to CNBC:
When asked if he could see a potential VAT in this nation, the president said: “I know that there’s been a lot of talk around town lately about the value-added tax. That is something that has worked for some countries. It’s something that would be novel for the United States.”
“And before, you know, I start saying ‘this makes sense or that makes sense,’ I want to get a better picture of what our options are,” Obama said.
So, for those who don’t know, The Heritage Foundation explains what a VAT is:
A VAT is levied on the “value added” to goods and services as they pass through each stage of the production process. There are two ways to impose a VAT, and both require businesses of all types to serve as tax collectors. The most common form, the credit-invoice VAT, operates somewhat like a sales tax. As explained by the Congressional Budget Office:
[The credit-invoice VAT] is typically administered by taxing the total value of sales of all businesses, but allowing businesses to claim a credit for taxes paid on their purchases of raw materials, intermediate materials, and capital goods from other businesses.[1]
By imposing a tax on receipts but then allowing a credit for VAT taxes collected at earlier stages of production, the credit-invoice VAT taxes the “value added” by each business. The total tax, regardless of the stage of production at which it was collected, ends up being added to the final sales price.
No matter how many steps there are in the production process, a fixed percent of the final price of the product would represent the value-added tax, just as a retail sales tax is a fixed percent of the final product price. However, unlike a sales tax, the cost of the VAT to consumers would be hidden.
Heritage has quite a bit on the effect of a VAT. I’ll list them, but you have to go visit them to read about the details:
- Effect #1: A VAT triggers more government spending and higher tax burdens.
- Effect #2: A VAT slows the economy and destroys jobs.
- Effect #3: A VAT means higher income taxes.
- Effect #4: A VAT imposes heavy administrative costs on businesses and taxpayers.
When I interviewed Rep. Steve King at CPAC, he suggested the Democrats might not be afraid of pursuing this tax.
If they do, it might be the straw that broke the camel’s back. I think it could be the thing that causes many moderate and conservative Democrats to tinally throw up their hands and walk away from a party they’ve watched become more and more socialist.
The fact Obama didn’t reject this idea outright leads me to believe this is a good place for this classic.
