COLUMN: Running VAT up the flagpole

I do not find the Senate resolution opposing the VAT even remotely reassuring. After all, this is the same Senate that pushed through health care reform after the legislation appeared to be dead in the water. This is the same Senate that is about to take up an economically devastating cap and tax bill after indicating last year that the bill had practically no chance of passing.

If there is one constant, it is that things change.

Recently, Economic Recovery Advisory Board chairman Paul Volker publicly admitted that the VAT "was not as toxic an idea" as it had once been.

Of course it isn’t. With record deficits, mounting debt and a near insatiable demand for entitlement spending, the VAT is an extremely attractive idea for tax-and-spend politicians. So attractive in fact, it is almost a no-brainer. There is no financial gamble with implementing a VAT because it will not replace the current income tax revenue stream – it will be an additional revenue stream. Imagine the glee as politicians contemplate what wondrous and amazing things they could do with the trillions of dollars a VAT could bring.

Reducing the massive national debt is just one of the financial miracles a VAT could accomplish. With the first meeting of the President’s deficit reduction commission scheduled for April 27, you can bet the VAT will be discussed at some point as a way of getting the United States out of the financial hole in which we currently stand.

The truth of the matter is that a VAT could do just that. Every one percent of VAT could swell government coffers by as much as $1 trillion per decade. With government spending at unsustainable levels already and about to go even higher once Obamacare is fully implemented, we need the money.

Even better from the point of view of politicians is that a VAT is relatively easy to increase once instituted. Look at Europe. Denmark has seen its VAT rate increase from nine to 25 percent, Germany’s has increased from ten to 19 percent and Italy increased their VAT rate from 12 to 20 percent. If those numbers do not worry you, they should.

The Tax Foundation estimated that a VAT of 18 percent would be needed to balance the budget. That’s right, 18 percent just for starters. That tax would presumably be in addition to state and local taxes. Ouch.

In a logical, fiscally responsible world, out-of-control government spending would be halted and massive entitlement programs cut before any additional taxation would be contemplated. This is not our reality though. Our reality is that spending only continues to grow and ultimately we, the American taxpayers – well, at least some of us anyway – are expected to pay the tab.

With the Bush tax cuts set to expire soon, government revenue will increase substantially. Unfortunately, it will not be nearly enough to pay for current levels of government spending. So, the President’s 18-member deficit reduction commission must come up with some sort of plan. The VAT is no longer the dark horse in the race to bring government debt under control, it is now the odds-on favorite.

The Senate can pass all the resolutions it wants regarding the VAT. The resolutions are not binding and do absolutely nothing to keep them from reversing course once the deficit reduction commission makes its recommendations in December – a report which is conveniently timed to be presented after the midterm elections.

The President has already said his debt commission will give Congress “political cover” if they chose to enact unpopular cost-saving measures. A VAT certainly falls into that category.

The prospect of a VAT is just one more reason to choose wisely in the next election. The men and women we send to Congress in November will very likely be asked to consider this massive new tax. We need elected officials who will resist that temptation and focus on cutting costs first.

Kristi Reed is a reporter for the Barrow Journal. She can be reached at kreed@barrowjournal.com.