Category Archive 'Value Added Tax'

27 Mar 2010

What’s Next?

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Charles Krauthammer explains the inevitable, long desired by socialists, consequences of the health care bill.

We are now $8 trillion in debt. The Congressional Budget Office projects that $12 trillion will be added over the next decade. Obamacare, when stripped of its budgetary gimmicks — the unfunded $200 billion-plus “doctor fix,” the double counting of Medicare cuts, the 10-6 sleight-of-hand (counting 10 years of revenue and only six years of outflows) — is at minimum a $2 trillion new entitlement.

It will vastly increase the debt. But even if it were revenue-neutral, Obamacare preempts and appropriates for itself the best and easiest means of reducing the existing deficit. Obamacare’s $500 billion of cuts in Medicare and $600 billion in tax hikes are no longer available for deficit reduction. They are siphoned off for the new entitlement of insuring the uninsured.

This is fiscally disastrous because, as President Obama himself explained last year in unveiling his grand transformational policies, our unsustainable fiscal path requires control of entitlement spending, the most ruinous of which is out-of-control health-care costs.

Obamacare was sold on the premise that, as Nancy Pelosi put it, “health-care reform is entitlement reform. Our budget cannot take this upward spiral of cost.” But the bill enacted on Tuesday accelerates the spiral: It radically expands Medicaid (adding 15 million recipients/dependents) and shamelessly raids Medicare by spending on a new entitlement the $500 billion in cuts and the yield from the Medicare tax hikes.

Obama knows that the debt bomb is looming, that Moody’s is warning that the Treasury’s AAA rating is in jeopardy, that we are headed for a run on the dollar and/or hyperinflation if nothing is done.

Hence his deficit-reduction commission. It will report (surprise!) after the November elections.

What will it recommend? What can it recommend? Sure, Social Security can be trimmed by raising the retirement age, introducing means testing and changing the indexing formula from wage growth to price inflation.

But this won’t be nearly enough. As Obama has repeatedly insisted, the real money is in health-care costs — which are locked in place by the new Obamacare mandates.

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).

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.

01 Oct 2009

Obama’s Next Big Idea

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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 — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’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 — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” 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 — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — 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. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’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 can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

Obama’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. It’s the economic “consensus” — and this was true even before the financial meltdown and recession — 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. What’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 it’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, “As a broad-based tax on consumption, it creates less economic distortion per dollar of revenue than any other tax–certainly much less than the income tax.” Indeed, a VAT is part of cash-strapped California’s newly proposed tax reform.

Liberals love the idea of a VAT because it’s, well, so European — 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.


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