Fritz Hollings, Beltway Tax Hikers, and the VAT

Posted by Ryan Ellis on Thursday, June 9th, 2011, 11:59 AM PERMALINK

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.

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