Updated: Comparison of Tax Plans for 2012 Presidential Candidates
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White House Signals New Push for Value-Added Tax?
Although the imposition of a value-added tax (VAT) would violate President Barack Obama’s central campaign promise – a “firm pledge” that no family making less than $250,000 per year would see “any form of tax increase” – he continues to surround himself with those sympathetic to the tax.
President Obama, who in April 2010 deemed a VAT “something that would be novel for the United States”, announced on Monday his intention to nominate Princeton University’s Alan B. Krueger to head the Council of Economic Advisors. In a 2009 blog post for the New York Times, Krueger wrote:
“Why not pass a 5 percent consumption tax to take effect two years from now?”
Even when pressed, the Obama White House has never ruled out a VAT. As the timeline below illustrates, those in and around the White House have been flirting with a VAT from the earliest days:
December 18, 2008: The Obama transition team announces VAT advocate Ezekiel Emanuel’s appointment as special advisor for healthcare at the Office of Management and Budget. Emanuel had long pushed for a VAT as a way to pay for government-funded universal healthcare. (See here, here, and here.)
Sept. 25, 2009: John Podesta, former head of Obama’s transition team, floats the VAT on Bloomberg Television’s “Political Capital with Al Hunt”:
“There’s going to have to be revenue in this budget,” said Podesta,
A so-called consumption tax would “create a balance” with European and Japanese economies and “could potentially have a substantial effect on competitiveness,” said Podesta.
Podesta said such a tax may be regressive, but can be balanced by exempting some products and using “the money to support low-wage workers.”
Sept. 29, 2009: Obama advisor Paul Volcker suggests a carbon tax and a VAT as a way to raise large amounts of revenue.
"Those are the two big ones. I'd love to see the expenditures held in check so we don't have to do that."
Sept. 30, 2009: The Center for American Progress—a group with close White House ties—releases a draft report encouraging the Obama Administration to consider a VAT. The report concludes:
"In all seriousness, responsible people know that additional revenue has to be part of the mix even if they believe in lower taxes in general.”
The White House did not respond to a Wall Street Journal reporter’s requests for comment about the proposal.
Feb. 19, 2010: During a Bloomberg interview, Erskine Bowles, co-chairman of Obama’s debt commission, said:
“A value-added tax -- I’ve looked at lots of them -- ought to be something that’s on the table.”
April 6, 2010: Speaking at a New York Historical Society event, Obama advisor Paul Volcker said a VAT is “not as toxic an idea” as it has been in the past and concluded:
"If at the end of the day we need to raise taxes, we should raise taxes."
April 19, 2010: The New York Times reports that the White House economic team has been calculating government revenues from a possible VAT:
But since any Social Security plan would probably preserve benefits for those nearing retirement, it would not help the administration achieve its goal of reducing the deficit to 3 percent of gross domestic product, from 10 percent, within a decade.
One way to reach that 3 percent goal, by the calculations of Mr. Obama’s economic team: a 5 percent value-added tax, which would generate enough revenue to simultaneously permit the reduction in corporate tax rates Republicans favor.
April 20, 2010: On MSNBC’s Morning Joe, White House economic advisor Austan Goolsbee refuses six consecutive opportunities to permanently close the door on a VAT:
MARK HALPERIN: Will the President ever consider tax reform that will involve a VAT? Would he ever consider it?
(Refusal #1) GOOLSBEE: Look, we are not, the report -- and I’m not sure where it came from cause it’s not anything I saw -- was that they were contemplating a VAT, that is not true. We have stood up this bipartisan fiscal commission, which as I understand it is considering a whole bunch of things.
HALPERIN: But would he ever consider.
(Refusal #2) GOOLSBEE: He’s going to consider whatever comes out of that fiscal commission.
HALPERIN: So if they recommend a VAT, he would consider it?
(Refusal #3) GOOLSBEE: I’m not going to get into a linguistic game about it.
HALPERIN: Well it’s not a linguistic game.
(Refusal #4) GOOLSBEE: He’s looking to see what comes out of the fiscal commission. He’s going to look at it.
HALPERIN: We had a President for eight years who said ‘no new taxes, we’re not going to raise taxes’. This President said ‘no taxes on the middle class’. Arguably there are taxes in the healthcare bill that will hit the middle class. So again, a VAT would be a big change in America. Would he consider it, if the commission recommends it, would he consider it?
(Refusal #5) GOOLSBEE: As you know, the President cut taxes for 95 percent of the workers in the stimulus. Many many billions of dollars. The President is committed to this bipartisan fiscal commission process and he’s going to seriously consider all the things that they put forward and he’s going to look at them. It doesn’t mean he’s supporting a VAT. We haven’t even contemplated a VAT.
HALPERIN: But if they recommend it, it’s not something he’d rule out?
(Refusal #6) GOOLSBEE: I’m not going to get into a hypothetical thing about it. He’s committed to a bipartisan fiscal commission.
April 21, 2010: President Obama makes it official: He is open to the imposition of a VAT on the American people. Obama’s admission came during an interview with CNBC’s John Harwood. Asked if he could see the potential for a VAT, 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.”
August 29, 2011: Obama announces his intention to appoint Alan Krueger to head the Council of Economic Advisors. In a 2009 New York Times blog post, Krueger wrote:
“Why not pass a 5 percent consumption tax to take effect two years from now?”
Fritz Hollings, Beltway Tax Hikers, and the VAT
In today's Huffington Post, former Senator Fritz Hollings (D-S.C.) proposes a net tax hike of around $500 billion--per year! He also says conservatives, led by ATR, should be for it:
To reverse this [globalization] trend, to engage in the trade war and make it profitable to produce in the United States, we need to eliminate the corporate tax and replace it with a 6% VAT. This will promote exports and permit Corporate America to repatriate $1 trillion in off-shore profits to create jobs in the United States. Revenue for the 2010 corporate tax amounted to $194.1 billion, whereas a 6% VAT for 2010 amounts to $700 billion. Exemptions of $70 billion for the poor, leaves $630 billion to pay down the debt. Spending cuts that Congress agrees upon gives us more than $630 billion to pay down the debt. With an average corporate tax of 23% being replaced with a 6% VAT, those looking for tax cuts will be enthralled - even Grover Norquist of the Americans for Tax Reform. The pledge that Grover Norquist has obtained from Congressmen and Senators is against tax increases. If Norquist objects to this tax cut, it's because he would lose control of Congress.
This is why a VAT is so dangerous. According to Hollings, a VAT with a rate as low as 6% would be enough to eliminate the entire corporate income tax and still leave the government with $506 billion left to spend. Over a decade (which is how tax hikes are scored), this would probably be a net tax hike approaching $6 trillion. This with a very low-rate tax system.
The government would do with this extra tax money what they do with all extra tax money--spend it.
A VAT is a horrible idea for America, and precisely for the reasons Hollings claims. Politicians won't be content to simply replace other taxes with a VAT. The tax rates involved are so low, and the VAT is so opaque, that the VAT will result in a massive new tax hike in no time at all. Hollings is simply showing the endgame early here.
To learn more about how a VAT works (including how it's hidden in the price of goods and services), and how it destroyed Western European economies, see ATR's "VAT Facts" PDF one pager.
Voters Reject a VAT
Now that the dust has settled from the great election tsunami of 2010, it's worth looking at some of the under-the-radar issues. One of these is public support for a value-added tax (VAT).
According to exit polling conducted by Kellyanne Conway's the polling company, inc./WomanTrend, a super-majority of voters oppose an add-on VAT:
- 63 percent of voters were opposed to a VAT, including 48 percent strongly opposed
- A majority of every demographic (age, race, ethnicity, education level, gender, region, parental status, and marital status) opposed a VAT
- All income levels opposed a VAT, with the strongest opposition (68 percent) coming from families making less than $25,000 per year
- A majority of every political affiliation (GOP, Democrat, Independent) opposed a VAT
- A majority of conservatives and moderates opposed a VAT, and even 40 percent of liberals did
- Even voters who pulled the lever for a Democrat opposed a VAT while doing so
- In an election all about spending, a majority of those voting on government spending or taxes opposed a VAT
The results could not be clearer. Americans instinctively know that a VAT would turn into a giant source of new tax revenue, turning us into a 21st century Western Europe.
Daily Media Spotlight August 11, 2010
Byron York of The Washington Examiner offers a new solution to cutting down the size of government, cut public sector pay down to private sector equivalents.
What MTV reality star Snooki knows that the Obama Administration doesn’t: Raising taxes will only further discourage and harm Americans in this troubled economy. The whole story can be found here.
Jeremy Weltmer of ATR has the scoop in The Daily Caller on how ObamaCare quietly paves the way for a European style VAT.
California lawmakers are seeking to ban the use of paper and plastic shopping bags across the state. ATR’s own Patrick Gleason has the story at The FlashReport.
Japanese Voters Reject VAT Hike
In Japan’s recent parliamentary election, the ruling Democratic Party of Japan lost seats to the party that they replaced last election as voters took a decisive stand against the high-tax proposals advanced by the Prime Minister. He had proposed a significant tax hike to the national VAT, and his party received a sharp rebuke for it.
As the Wall Street Journal reported, “Mr. Kan made his party's prospects tougher with an unpopular pre-election pledge to boost the [Japanese VAT] to rein in the country's outsize borrowing, thinking that Japan's voters would understand the severity of its fiscal conditions and appreciate his honesty.”
Yet just as one can expect of the struggling Democratic Party here in the U.S., he refused to lay the blame on failed and unpopular policy. “The prime minister admitted after Sunday's election that the strategy didn't work. ‘My discussion on the consumption tax was received by the voters as rather abrupt,’ a sober-faced Mr. Kan said at his news conference. ‘I, myself, feel that a big reason [for the defeat] was I didn't explain it well enough.’”
It seems that Messers. Kan and Obama have something in common: an inability to consider that voters do not look favorably on lawmakers’ desires to increase tax rates, or in Mr. Obama’s case, impose a national VAT. While the implementation of the Japanese subtraction-method VAT differs substantially from the European-style VAT suggested by Obama’s advisors and officially still on the table in spite of its crippling effects, both leaders seem incapable of conceiving of a government constrained in what it can extract from the economy. One can only hope that the significance of the public’s will as expressed in elections will eventually sink in for the sake of those voters who gave these men their jobs.
For more information on the perils of a VAT in the U.S., examineATR’s Anti-VAT Toolkit.
Daily Media Spotlight July 19, 2010
In an exclusive interview with Newsmax, Grover discusses how the Obama administration’s plan to allow the Bush Tax Cuts to expire will cost taxpayers $1 trillion. “It would be the largest tax increase in American history, and it would take every marginal tax rate and increase it. The taxes on businesses, on capital gains, would be very high.”
The Wall Street Journal mentions ATR opposition to a transaction tax floated by Congress. “Critics such as Americans for Tax Reform have attacked the bill for its potential harm to business. Many companies operate on razor thin margins, and additional taxes, no matter how small, threaten to squeeze new spending at a time when the economy continues to show signs of weakness”
In a Politics Daily article about Jacob Lew’s return to the helm of the Office of Management and Budget, Grover expresses his skepticism that anyone can stop the spending and tax increases proposed by Harry Reid and Nancy Pelosi. “Reid and Pelosi wrote the health care bill. Reid and Pelosi, [Sen. Chris] Dodd and [Sen. Barney] Frank wrote the bank bill. If the spending cocktail of the last two years was a martini, Obama is the vermouth.”
Sen. Hatch Urges Volcker to Junk a VAT
Amid the furor over the so-called “Volcker Rule,” the President’s Economic Recovery Advisory Board, of which Volcker serves as Chairman, has gone largely unnoticed. This board, in Volcker’s words, was created “to discuss the pros and cons of a spectrum of reform ideas relating to tax simplification, enforcement of existing tax laws, and reform the corporate tax system.” In line with that mission, Sen. Orrin Hatch of Utah sent Chairman Volcker a letter Thursday urging him and his committee not to consider a value-added tax as an option.
First acknowledging the necessity of “moving toward a tax code that finances the nation’s priorities with as little interference in savings, investment, and growth as possible,” Hatch then asserts that “I believe that the mere discussion of a VAT overlay on top of our current tax system is dangerous and could move some Washington policymakers further toward an inclination to increase spending by providing more revenue.”
He then points out many of the problems that plague the implementation of a VAT. In principle, a value-added tax levies production at each stage, and it then includes that tax burden in the price. Using a loaf of bread as an example, one can trace the rising tax bill through the entire production chain. Most importantly, a VAT hides the level of taxation in the prices of goods, so cash-strapped legislators can then increase the rates quietly, and unlike a sales tax, consumers have no way of seeing the amount of tax that they paid. For proof, just look at the aggregate tax levels in European countries before and ten years after enacting a VAT. As much as politicians would like to sell this as a replacement for other types of taxes, it merely offers s convenient and opaque backdoor to more revenue extraction from the economy. Moreover, while income taxes have a demonstrable maximum percentage of GDP that they can suck out of the economy, a VAT allows for completely unchecked growth of government spending and interference in the economy. To combat this pernicious approach to hijacking revenue, Americans for Tax Reform has assembled a toolkit on the VAT and has joined with Members of the House and the Senate to reinvigorate the Anti-VAT Caucus.
Given the rationale against the VAT expressed by Sen. Hatch, one can only hope that Chairman Volcker and his board listen.
Daily Media Spotlight June 21, 2010
In Politico’s Arena, Grover discusses Republican leadership and Obama’s need to become a more competent leader. “The effort to claim the Republican Party (or any political entity) has only one leader serves to minimize the depth and breadth of the movement. No one person speaks to or for the entire movement. Reagan and Lincoln did - in retrospect. At the time, they were at best first among equals and only time and the success of their then revolutionary ideas made them define the mainstream of their party.”
National Journal quoted Grover’s opposition to a VAT and what he is doing to stop the Obama administration from bringing the option to the table. “Norquist's Americans for Tax Reform recently blasted the VAT in letters to Obama and the fiscal commission. "VAT is a French word for Big Government," he says, scoffing at Democrats' denials of any interest in a value-added tax. "Henry VIII promised not to cut off the heads of any more wives," Norquist says.” (Subscription required)
Norquist Accepts Obama Fiscal Commission Co-Chair Alan Simpson's Invitation to Testify
Former U.S. Senator Alan Simpson, the co-chairman of President Obama’s fiscal reform commission, has invited Americans for Tax Reform president Grover Norquist to appear before the commission during its public hearing on the afternoon of June 30. As reported in National Journal, Simpson said:
"We're notifying everybody in America, if you want to come in, don't come in to bitch. Come in and tell us what you would do to get where we are trying to get. We're going to sit here from 1 (p.m.), grab a sandwich, and go until midnight.I want to particularly ask Grover Norquist, what is it you want to do? Other than just raise money and get members, what have you got in mind to help America proceed, other than say anybody that talks about raising taxes will be cremated and crucified on a stake?"
Norquist accepts the invitation and has submitted application details per the Commission’s website, www.FiscalCommission.gov.
The Commission is formally known as the National Commission on Fiscal Responsibility and Reform, and will conclude its work no later than December 1. Simpson serves as co-chairman along with Erskine Bowles, Chief of Staff to President Bill Clinton. Bruce Reed, Chief Domestic Policy Adviser to President Clinton, serves as Executive Director.
The full list of Commissioners is as follows:
Sen. Max Baucus (D-Mont.)
Rep. Xavier Becerra (D-Calif.)
Rep. Dave Camp (R-Mich.)
Sen. Tom Coburn (R-Okla.)
Sen. Kent Conrad (D-N.D.)
David Cote, Chairman and CEO, Honeywell International
Sen. Mike Crapo (R-Idaho)
Sen. Richard Durbin (D-Ill.)
Ann Fudge, Former CEO, Young & Rubicam Brands
Sen. Judd Gregg (R-N.H.)
Rep. Jeb Hensarling (R-Texas)
Alice Rivlin, Senior Fellow, Brookings Institute and former Director, Office of Management & Budget
Rep. Paul Ryan (R-Wis.)
Rep. Jan Schakowsky (D-Ill.)
Rep. John Spratt (D-S.C.)
Andrew Stern, former President, Service Employees International Union