White House economic advisor refuses to rule out a VAT

Posted by John Kartch on Tuesday, April 20th, 2010, 3:05 PM PERMALINK

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White House economic advisor Austan Goolsbee today left the door open to consideration of a value-added tax (VAT) if recommended by the White House deficit commission.
Coming a day after White House spokesman Robert Gibbs would only say a VAT is not currently being considered, Goolsbee repeatedly refused to permanently rule out VAT consideration.  The deficit commission is expected to report to the President later this year.
The exchange took place on MSNBC’s Morning Joe, with Goolsbee refusing 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. 
Goolsbee’s refusal to permanently rule out a VAT may explain President Obama’s recent attempts to alter the terms of his central campaign promise – a promise that no family making less than $250,000 per year would see “any form of tax increase”.
Twice in the past ten days, Obama has claimed his pledge applied only to income taxes. In his April 10 Weekly Radio Address, Obama said:
“And one thing we have not done is raise income taxes on families making less than $250,000.  That’s another promise we’ve kept.”
In a speech on the evening of April 15, Obama repeated the truncated promise:
“And one thing we haven’t done is raise income taxes on families making less than $250,000 a year -- another promise that we kept.”

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ATR Asks Obama to Clarify Administration's Position on a VAT Tax

Posted by Chris Prandoni on Wednesday, April 14th, 2010, 4:12 PM PERMALINK

Given the enormous deficit facing America and the Administration’s calls for additional revenue, Grover Norquist sent the following letter to President Obama asking him to clarify his position on the VAT tax.  

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Dear President Obama:

During your campaign for President and up until the present day, you have consistently reiterated a promise to the American people: you will not raise “any form” of taxes on families and small businesses making less than $250,000 per year.

You broke this promise by signing your healthcare reform legislation.  Seven of the nineteen new taxes or tax hikes in that law fall directly on working families.  The rest will be passed along to middle-income households in the form of higher prices and lower wages.

Now, it seems that administration surrogates have been laying the groundwork for a European-style value-added tax (VAT).  Just this month, your tax commission chairman, Paul Volcker, said that the VAT is “not as toxic an idea” as it has been in the past.  Deficit reduction commission member Alice Rivlin (a longtime VAT sympathizer) said, “we have to take action on the revenue side as well.”

Since a VAT is a type of sales tax, it would clearly be imposed on all Americans—not just those making more than $250,000. 

You need to make it clear to taxpayers if you believe in your promise not to raise taxes on families making less than $250,000.  You clearly didn’t follow through with this promise when it came to healthcare reform.  Will you again break it by imposing a VAT, or will you rule out a VAT as inconsistent with your campaign pledge?

Grover Norquist

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ATR Calls on Congressmen and Senators to<br> Join the Anti-VAT Caucus Today

Posted by Ryan Ellis on Thursday, April 8th, 2010, 6:26 PM PERMALINK

Americans for Tax Reform today invited every Congressman and Senator to join the Anti-VAT (Value-Added Tax) Caucus.  Currently consisting of 54 Congressmen and 4 Senators, it's a group of elected officials who have bound themselves to oppose a VAT.

Below is the text of the letter:

President Obama and Congressional Democrats have proposed a series of tax hikes on the American people to pay their massive new government spending.  Former Federal Reserve Chairman Paul Volcker—who heads up a presidential tax reform commission—just this week said a value-added tax (VAT) was a good idea.  This elicited agreement from many in official Washington.  Needless to say, a VAT is a bad idea, and defenders of taxpayers should be opposed.

Americans for Tax Reform maintains a list of anti-VAT Congressmen and Senators known as the “Anti-VAT Caucus.”  I am writing you today to give you the opportunity to join this pro-taxpayer, Anti-VAT caucus.  The Anti-VAT caucus currently has 54 Congressmen and 4 Senators, and we’re looking to grow the list quickly over the next several weeks.  This caucus has no meetings to attend and no dues to pay.  All you need to do is sign up.  Contact Ryan Ellis at ATR ( to do so, and he will sign you up right away.

In Europe, a small VAT was first enacted in 1967.  At that time, Europe and the United States both confiscated about $0.27 out of every dollar of national income.  Since the introduction of the VAT in Europe, that continent’s average tax take has gone from 27% to 41% of GDP, nearly a 50% increase in just four decades.  There is currently a minimum VAT rate requirement of 15% to be a member of the European Union, and an average VAT rate of 20%.  Meanwhile, the VAT-less United States still taxes at about the same level as it did in 1967.

The experience of Europe should teach us that the imposition of a VAT is too often the precursor to bigger government.  It is simply too easy for politicians to raise a tax that is hidden from citizens.

A VAT is not like a national retail sales tax.  A sales tax is a line-item on a cash register receipt, and is easily known by the consumer: a very effective check on raising the sales tax rate.  A VAT, on the other hand, is embedded in the final cost of the goods sold, and is hidden to the consumer.  The VAT is applied at every stage of consumption, from raw materials to retail.  It is passed along until it literally becomes as much an inherent and cloaked component in the price as transportation or labor.  As a result, countries that have adopted a VAT have been sorely tempted to raise the rate over time.  I am proud to have FAIR Tax sponsor Congressman John Linder (R-GA) as a member of the Anti-VAT Caucus.

That’s why I urge you to join the Anti-VAT caucus today, to let your constituents and the American people know that you think a VAT is a bad idea for America.

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VAT in practice

Posted by Tim Andrews on Monday, April 5th, 2010, 4:06 PM PERMALINK

In recent weeks, more and more pundits inside the Beltway have been raising the prospect of the Obama Administration imposing an economically devastating Value Added Tax (VAT) as a way to pay for the trillion dollar Government Health Care takeover.

Writing in today's Wall Street Journal, Irwin Stelzer, director of economic policy studies at the Hudson Institute, explains exactly how a VAT works in practice in the (many) countries where it has been tried:

Because both upper- and lower-income families pay the tax at an equal rate, the VAT is considered regressive; that is, it hits the poor harder than the better-off. So it is the practice in countries such as Britain to exempt food, which lower-income families spend a greater proportion of their income on....
Hit Read More to continue... 
This process of writing regulations for the VAT man when he cometh is more than merely amusing. For one thing, it confers enormous power on faceless bureaucrats. They can hand a competing product the advantage in the U.K. of a price 17.5% lower (in Sweden it's 25%) than a close substitute. That invites both lobbying and corruption and sheer, inexplicable arbitrariness. Get your "sweetened dried fruit" deemed to be "held out for sale as snacking and home baking" and your product will bear a tax and have to compete on grocers' shelves with zero-rated "sweetened dried fruit held out for sale as confectionary/snacking." Peddle your sandwiches "as a general grocery item" and consumers pay no tax, but offer them as "part of a buffet service" and the VAT man wants his 17.5%.
Manufacturers twist and turn and juggle their product specifications and processes, not to find the most efficient way of making things but the surest way of obtaining a zero rating. The resulting inefficiencies cannot be measured accurately, but they certainly contribute to Europe's lagging productivity and increasing inability to compete in world markets.

We urge all legislators to join our Anti-VAT caucus, so that we won't have to write (yet another) blog posted tagged "told you so" if this disaster is passed into law. 

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Return Of The VAT

Posted by Tim Andrews on Tuesday, March 30th, 2010, 2:14 PM PERMALINK

For some time now, American taxpayers have been worried about the looming prospect of a crippling national sales tax (the VAT) to bail out Washington DC's chronic overspending. We have written previously about plans to use a VAT to pay for the out-of-control spending that Obamacare shall usher in, as numerous Obama allies have floated the idea on numerous occasions.

We thought that this job-killing, economy-destroying tax was dropped when we, like so many others, pointed out its lunacy, particularly in the current economic climate.  So it's somewhat disturbing to read last week that Charles Krauthammer predicted a value-added tax (or VAT) could be in the works, and even more disturbing that Brit Hume has suggested that  the VAT could be pushed into law during a lame-duck session of Congress, if loss for the Democratic Party are steep enough to force them to relinquish their control following the 2008 cycle

Although it still remains unlikely that Congress will do something to so destructive just after passing Obamacare, it is certainly a handy reminder that we must always remain vigilent against such threats. And, as we have said many, many times, for many, many  reasons, the VAT is a very, very bad idea

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More on the VAT

Posted on Monday, March 8th, 2010, 6:11 PM PERMALINK

 As more and more on the left are floating the idea of imposing a Value Added Tax (VAT) to pay for some of their outlandish spending proposals, and indeed as a general panacea to the country's fiscal woes. 

Veronique de Rugy, writing in Reason, has a great article on just why this is a bad idea. Specifically, she notes:

The first thing to note is that Greece collapsed in spite of having a 19 percent VAT since 2005. The second thing is that there's little to no chance that the government could credibly commit to assign even a share of any new VAT revenue to deficit reduction. Take President Obama's first budget, released last year. In it, he assumed that most of the $600 billion coming from proposed cap-and-trade fees would be allocated to deficit reduction. A year later, his budget still assumes the revenue (even though the law is not yet passed), but all of it has been allocated to spending programs, not to reducing the deficit. A government that cannot commit fictional revenue to deficit reduction is unlikely to do so with actual money either.

I would strongly urge you to read the whole article.

Americans for Tax Reform has recently re-invigorated our Anti-VAT caucus.  There are currently 45 Congressmen and 2 Senators in the caucus.  ATR strongly urges all elected officials to join.


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Why Tyler Cowen is Wrong About a VAT

Posted by Ryan Ellis on Thursday, February 18th, 2010, 11:53 AM PERMALINK

Tyler Cowen from Marginal Revolution wrote a much-discussed piece this week ("Is There a Case for a VAT?") about a value-added tax (VAT).  I would read that first before continuing to read this, which should be considered ATR's rebuttal.

  • If there's a fiscal boogeyman, it's not taxes.  Federal taxes have averaged about 18 percent of GDP since 1960.  According to the Obama budget, they will equal 19.6 percent in the tenth year of his budget policy.  In other words, taxes are not too low.  A case can be made that taxes under the Obama budget (or current law) are already too high.  Even under a "full extension" tax plan (Bush tax cuts, AMT patch indexed, extenders) taxes only revert back to their historical average of 18 percent of GDP
  • The fiscal boogeyman is spending.  Spending as a percent of GDP has averaged about 21 percent of GDP since 1960, creating a structural deficit average of 3 percent of GDP (21 minus 18).  Yet, the Obama budget calls for a year-10 spending level of 23.7 percent of GDP.  Spending is the source of the long-term budget imbalance, not taxes.  If spending was to end up at its historical levels, we'd be pretty close to a balanced budget by the end of this decade
  • Cutting spending as a percent of the economy is very realistic.  Cowen points out that it is too politically-difficult to cut spending.  I agree.  Congress isn't set up to do that.  However, the 1992-2000 period shows us how limiting spending to less than the rate of nominal GDP growth can have profoundly free-market results.  When the first President Bush left office, federal spending was 22.1 percent of GDP.  Republicans stymied the Clinton agenda, took over Congress, and stopped the big-spending Clinton agenda in its tracks (Clinton's presence avoided the unchecked spending excesses of the Republican-only era of this decade).  Spending fell all the way to 18.2 percent of GDP in 2000 and 2001.  This was a monumental achievement for less government.  How did it happen?  Simple--the government grew at a slightly slower rate than the economy grew.  We can do that again, probably with a GOP House and a Democrat President.  This is not ancient history.  It's the 1990s.  This is the model to shrink Washington.  Boil the lobster slowly.
  • There is no "credible bipartisan deal" for a VAT and spending restraint.  This is a fantasy of politically-disconnected policy wonks and the mainstream media.  Every time tax increases have been on the table with spending restraint (TEFRA 1982, the 1990 "Read My Lips" Andrews Air Force Base deal, etc.) the spending cuts didn't materialize.  The tax hikes sure did.  This "deal" would be no different.  We'd end up with phony spending cuts and a VAT.  And, as Dan Mitchell from Cato has amply pointed out, a VAT killed Europe's economy in the second half of the last century.

So, there's our rebuttal.  Higher taxes are not needed (in fact, scheduled tax hikes need to be scrapped, and pro-growth tax cuts put in place to make sure we get enough GDP growth).  On the spending side, don't spend the rest of the stimulus bill.  Don't re-spend TARP.  Back out some of the waste from the Bush-Obama-Pelosi-Reid spending spree.  But mostly rely on the 1990s divided government strategy.  Grow the government, but less than you grow the economy.  We can all take a deep breath and move on with our lives.

UPDATE: Tyler Cowen emailed me to clarify that his first preference is spending cuts, and he does not endorse a VAT.  This is made abundantly-clear in his post, which should be read prior to reading this rebuttal.

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Get Ready for the Other Shoe to Drop:<br> Volcker Commission Tax Hikes for Healthcare

Posted by Ryan Ellis on Monday, December 21st, 2009, 2:22 PM PERMALINK

It was little-noticed in late November when former Federal Reserve Chairman Paul Volcker announced that the tax reform commission he chairs would wait to deliver its report until "after the holidays."

What you might not see is the connection between this and the Reid-Obama government healthcare bill.

ATR has written considerably about the $500 billion in new tax increases to pay for this government takeover of health insurance.  Many have speculated that even this gargantuan sum of money won't be enough, especially as unanticipated cost over-runs typical of such schemes begin to take hold.

This is where the Volcker tax-hike commission comes in.

If the Obama Administration and Congressional Democrats are going to get their way and permanently raise federal spending to 25 or 30 percent of GDP (and the unfunded liabilities in Reid-Obama will do their part to push that along), they will need new sources of revenue (the historical level of federal taxes has been a bit over 18 percent of GDP).

It's likely the White House and Capitol Hill Democrats didn't want to announce all the new tax increases now, preferring to wait until "after the holidays" (and after Congress has already committed American taxpayers to this new scheme).

What types of tax hikes could there be?  How about a new value-added tax (VAT)?  Assuming a European VAT base, each 2.5 percent of VAT rate raises you 1 percent of GDP.  Tax hikes on international profits of U.S. employers is another tempting target.  How about carbon taxes or other energy tax hikes?  Some have called for the IRS to prepare your tax return for you, which "strangely" results in higher overall taxes collected.  Anyone for closing the "tax gap" through "revenue enforcement mechanisms?"  The list goes on and on.

The point is, the tax hike side of this health care debate has yet to show its final card.

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