August 10, 2009
By Curtis S. Dubay
No one can say President Obama lacks ambition. The speed with
which he has pursued his agenda to radically change the
relationship between Americans and their government -- spending
colossal amounts of taxpayer money on health care, energy and the
economy in the process -- has surprised even the most experienced
Washington hands. But all that spending is driving deficits through
the roof. Persistently steep deficits lower economic growth because
they reduce private investment by individuals and businesses. That
may explain why two of the president's top economic officials
recently refused -- campaign promises notwithstanding -- to rule
out new taxes on the middle class.
"We're going to have to do what it takes," said Treasury
Secretary Timothy Geithner. "We're going to do what's necessary."
Indeed, to stem the tide of red ink, there is a growing push to
levy a new "value added tax" -- commonly referred to as a VAT -- on
all American taxpayers.
When Obama took office, the deficit stood at $1.2 trillion --
then a record. But he was determined to pursue his agenda, so he
and Congress doubled down and exploded the deficit by passing a
$787 billion stimulus and a $410 billion spending increase. Then
President Obama proposed, and Congress adopted, a budget that will
increase the national debt by $7.5 trillion over 10 years. As a
result, this year's deficit will likely hit $2 trillion, almost
double what it was when President Obama took office. And deficits
from 2010 through 2019 will average just under $1 trillion.
This out-of-control spending has led us to a point where the
backers of bigger government consider higher taxes on all Americans
unavoidable. In a cruel irony for taxpayers, this might have been
the plan all along: to increase spending so much and so fast that
massive tax hikes became almost inevitable. This plan to "glut the
beast" stands in stark contrast to the "starve the beast" approach
favored by President Reagan.
That approach sought to lower spending by depriving Congress of
revenue through tax cuts. Taxpayers should hope glutting the beast
fails as spectacularly as starving it did. Levying a VAT, atop all
the other taxes we already pay, is one of the few options if
Congress and the president hope to keep feeding the beast.
They can't raise income taxes on anyone making under $250,000 a
year because of the Obama's oft-repeated campaign pledge. And they
can't raise them on the rich more than they already plan, because
there just isn't enough income left at that level to tax (unless
income tax rates rise across the board to heights intolerable to
That leaves the VAT. A VAT would still break President Obama's
pledge not to raise the taxes of anyone earning less than $250,000,
because every American who buys anything will pay it. But because
it could largely be hidden from the view of taxpayers, the
president's campaign promise would -- at least to the untrained eye
-- appear intact.
If it becomes law, the VAT promises to be a whopper of a tax
hike. Some have suggested a VAT rate set to raise $1.3 trillion
each year. That would raise the taxes of each household in the U.S.
by $10,700 annually on average. All that money, taken from families
and businesses and given to a spendthrift president and Congress,
would seriously harm the economy. A VAT levied on top of all the
income, payroll and other taxes we already pay would mean less
money for families to buy goods and services, or to save and invest
for rainy days and retirement.
Businesses would have less money to expand operations, add new
jobs and raise wages. Economic growth, and the jobs and wages that
come with it, would suffer.
To avoid this, President Obama and Congress should drop their
plans for an expensive government takeover of the health care
system. And a costly new environmental and energy regulation regime
should come right off the table. They'd be better off eliminating
wasteful and ineffective spending and reforming entitlement
programs such as Social Security, Medicare and Medicaid to make
them more efficient and affordable. Then there'd be no need for an
economically damaging VAT -- a "solution" to our needless deficits
that would only make matters worse.
Curtis S. Dubay is senior
tax-policy analyst at the Heritage Foundation.
First Appeared in the Tallahassee Democrat
No one can say President Obama lacks ambition. The speed with which he has pursued his agenda to radically change the relationship between Americans and their government -- spending colossal amounts of taxpayer money on health care, energy and the economy in the process -- has surprised even the most experienced Washington hands.
Curtis S. Dubay
Research Fellow, Tax and Economic Policy
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