The Dangers of a Value-Added Tax

My head almost exploded last week when I heard that Nancy Pelosi told Charlie Rose, that the Value Added Tax (VAT) should not be taken off the table as a possibility for funding the behemoth government spending plans she intends to foist on the American public.

Pelosi, appearing on PBS's "The Charlie Rose Show" asserted that "it's fair to look at" the VAT as part of an overhaul of the nation's tax code.

"I would say, Put everything on the table and subject it to the scrutiny that it deserves," Pelosi told Rose when asked if the VAT has any appeal to her.

Where does it end?  For many years, different groups have advocated for U.S. tax reform, including proponents of the VAT, the flat tax, the fair tax, and a national sales tax to name a few.  But unless I am mistaken, all of these proposals have as premises, tax simplification and the elimination of today's tax code and the Internal Revenue Service. Rest assured, this is not what Pelosi has in mind.

Dan Mitchell of the Cato Institute has produced a video primer on the VAT that provides a clear picture of its long term effects on the European economy.  Watch it here (via Hotair.com).

The Dangers of a Value-Added Tax, an opinion piece in yesterday's Wall Street Journal discusses the facts and fallacies about the VAT, and concludes that it would forever change the balance between the public and private sectors:

Mr. Obama and Mrs. Pelosi might also use the VAT to fund "free" government-run medical care and hospitals for everyone, as well as "free" college education and "free" home mortgages.

How about a temporary VAT, solely to pay down the federal debt? When was the last time a tax ever went away? Or how about a smaller VAT of only 5%? Obviously, it could quickly grow. Any tax increase big enough to repay much of the huge federal debt would devastate the economy for years to come.

The one certainty about a VAT is its enormous revenue-producing potential. At a rate of 17% to 18%—about average for Europe—it could increase total federal taxes to 30% of GDP or more from 15% now, according to the Congressional Budget Office. In combination with higher federal spending, this could forever alter the balance between the public and private sectors.

America and its economy would be radically changed—and not for the better. The first priority in Washington should be to cut spending, not to add a powerful new weapon to the tax arsenal.

Exactly right.  I can't decide if the tax and spend Democrats are evil, or just plain dumb.  It's a puzzle.  What I am sure of is that they want to control every dollar that moves, and every being that draws breath in this country.