President Obama suggests VAT is an option

Charles Krauthammer has long predicted that the Obama administration would turn to the European-style value-added tax (VAT) to pay for his ever-growing wish list of entitlement spending.  Last week the Senate passed a non-binding resolution expressing opposition to the U.S. adopting a VAT. The White House, through press secretary Robert Gibbs, has denied that the VAT was under consideration.  Today, in an interview with CNBC, the President had an opportunity to personally disavow the VAT, and not surprisingly, he punted:

President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table, seeming to show more openness to the idea than his aides have expressed in recent days.

Before deciding what revenue options are best for dealing with the deficit and the economy, Obama said in an interview with CNBC, "I want to get a better picture of what our options are."

After Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT, the Senate voted 85-13 last week for a nonbinding "sense of the Senate" resolution that calls the such a tax "a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery."

For days, White House spokesmen have said the president has not proposed and is not considering a VAT.

"I think I directly answered this the other day by saying that it wasn't something that the president had under consideration," White House press secretary Robert Gibbs told reporters shortly before Obama spoke with CNBC.

After the interview, White House deputy communications director Jen Psaki said nothing has changed and the White House is "not considering" a VAT.

The President's Bipartisan National Commission on Fiscal Responsibility and Reform is scheduled to report its recommendations on reducing the deficit by December 1, 2010, after the mid-term elections in November.  The White House will continue to dissemble about VAT until then, but my money is on a VAT recommendation from this blue ribbon commission.

The VAT cometh

In February the President announced the formation of a deficit-reduction panel to make recommendations to deal with our government's surreal budget problems, and ordered it to deliver a solution by December 1, well after the fall elections.  Charles Krauthammer predicts that the solution will include the value-added tax.  From Real Clear Politics:

What will it recommend? What can it recommend? Sure, Social Security can be trimmed by raising the retirement age, introducing means testing and changing the indexing formula from wage growth to price inflation.

But this won't be nearly enough. As Obama has repeatedly insisted, the real money is in health care costs -- which are now locked in place by the new Obamacare mandates.

That's where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude -- if you exempt food, for example, the yield would be more like $900 billion).

It's the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

As the Obama administration forges ahead with its plans to transform this country with universal health care, carbon taxation and amnesty for illegal immigrants, it is difficult to argue with Mr. Krauthammer's logic.  The VAT will further stifle economic growth and job creation as it has done in Europe.

Max Boot worries that the explosion of entitlement spending will also have a devastating effect on America's global power:

In other words, ObamaCare will likely continue the trend already evident during the first year of the administration—when, thanks to the bank bailout and stimulus bill, federal spending as a share of GDP soared to 24.7%, unprecedented in peacetime. If you add in state and local spending, the government as a whole consumes 37.5% of GDP, up from 34.7% in 2008. Prepare for those figures to climb further as government takes on new health-care obligations.

To consider the implications for defense, look at Europe. Last year government spending in the 27 European Union nations hit 52% of GDP. But most of them struggle to devote even 2% of GDP to defense, compared to more than 4% in the U.S.

When Europeans after World War II chose to skimp on defense and spend lavishly on social welfare, they abdicated their claims to great power status. That worked out well for them because their security was subsidized by the U.S.

But what happens if the U.S. switches spending from defense to social welfare? Who will protect what used to be known as the "Free World"? Who will police the sea lanes, stop the proliferation of weapons of mass destruction, combat terrorism, respond to genocide and other unconscionable human rights violations, and deter rogue states from aggression? Those are all responsibilities currently performed by America. But it will be increasingly hard to be globocop and nanny state at the same time. Something will have to give.