The proposed nationalization of America’s health is in serious trouble with public support shrinking and Congressmen running fir cover, so what do you suppose the Chosen One has in mind for his next major political initiative?
James Pethokoukis thinks he has identified the objective of the Obama Administration’s next major offensive: an American VAT.
There have been serious proposals from sensible people that the US should eliminate the Income Tax and replace it with a VAT. No need to worry about that replacement idea with Obama. He’ll be looking for both.
Does President Obama have a secret plan to raise taxes on middle-class Americans â€” and,well, pretty much everybody else â€” with a European-style, value-added tax? Actually, itâ€™s not such a big secret. Connect the dots:
1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth â€” which means Americans must spend less and save more and reduce its budget deficit.
2) That same weekend, John Podesta, co-chairman of Obamaâ€™s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is â€œmore plausible todayâ€ than ever, adding that â€œthereâ€™s going to have to be revenue in this budget.â€ A VAT is a kind of consumption tax.
3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker â€” Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson â€” admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. Thatâ€™s $400 billion a year, by the way, not over ten years.
4) Also, yesterday was the first meeting of President Obamaâ€™s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington canâ€™t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. â€œThose are two big ones,â€ he says.
5) As they used to say in the Soviet Union, â€œItâ€™s no coincidence.â€ This is also the conclusion of one Washington insider with ties to the White House economic team: â€œDoes this all add up to a trial balloon? Of course, itâ€™s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.â€
Obamaâ€™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. Itâ€™s the economic â€œconsensusâ€ â€” and this was true even before the financial meltdown and recession â€” 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. Whatâ€™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.
And itâ€™s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. Conservative economist Bruce Bartlet puts it this way, â€œAs a broad-based tax on consumption, it creates less economic distortion per dollar of revenue than any other taxâ€“certainly much less than the income tax.â€ Indeed, a VAT is part of cash-strapped Californiaâ€™s newly proposed tax reform.
Liberals love the idea of a VAT because itâ€™s, well, so European â€” also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.