White House Won't Rule Out Value Added Tax, Which Would Hit All Income Levels

Thursday, April 22, 2010
By Fred Lucas, Staff Writer

White House Press Secretary Robert Gibbs. (AP Photo/Charles Dharapak)

– Economist and former House Majority Leader Dick Armey (R-Texas)

(CNSNews.com) – Economist and former House Majority Leader Dick Armey (R-Texas) said he “always believed” the Democrats would impose a Value Added Tax (VAT) on top of all existing, current taxes when they took control of the House, Senate and White House. Armey also said the VAT is the most “insidious tax of all.”
 
In an exclusive interview with Armey on Capitol Hill, CNSNews.com asked, “Paul Volcker, a senior economic adviser to President Obama, and several members of Congress, including Speaker Pelosi, have floated the idea of the VAT tax being implemented on top of current taxes. Would you support something like that? Why or why not?”
 
Armey said, “Absolutely not. Look, in 1994, I studied – actually, starting in the fall of ’93 – I studied all tax options out there, and I, of course, settled on the flat tax as the best option for a lot of reasons. The Value Added Tax was always the most insidious tax of all, and I always saw that – I’d seen that back in ’77.”
 
“But, I always believed that when the Democrats got the majority in both the House and the Senate – and I’ve told this to people for years – when they get the House and the Senate and the White House, they’re going to add a Value Added Tax to the existing income tax,” said Armey.

Europe's VAT Lessons

Rates start low and increase, while income tax rates stay high.

As Americans rush to complete their annual tax returns today, there is still some consolation in knowing that it could be worse: Like Europeans, we could pay both income taxes and a value-added tax, or VAT. And maybe we soon will. Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT, so we thought you might like to know how it has worked in Europe.

A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. (See the nearby chart.) In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.

VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.

Europe's individual income tax rates have fallen since the 1980s, following the U.S. lead in the Reagan era, and European corporate tax rates have come down even more sharply. But the drive of this decline has been global tax competition, not the offsetting burden of the VAT.

In the U.S., VAT proponents aren't calling for a repeal of the 16th Amendment that allowed the income tax—and, in fact, they want income tax rates to rise. The White House has promised to let the top individual rate increase in January to 39.6% from 35% as the Bush tax cuts expire, while the dividend rate will go to 39.6% from 15% and the capital gains rate to 20% next year and 23.8% in 2013 under the health bill, from 15% today. Even with these higher rates, or because of them, revenues won't come close to paying for the Obama Administration's new spending—which is why it is also eyeing a VAT.

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. >From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.

Thanks to the recession and the stimulus, U.S. federal debt held by the public has now reached about 63% of GDP and is headed higher, but the OECD forecasts that the 30 wealthiest nations will see debt burdens "exceed 100% of gross domestic product in 2011." Debt levels in France, Germany, Spain and Italy are expected to have increased by 30 percentage points of GDP from 2008 to 2011. Greece has a VAT rate of 21%, but its debt as a share of GDP is 113%.  Read more here.

Is The Value Added Tax Next?

As the night follows the day, the VAT cometh.

With the passage of Obamacare, creating a vast new middle-class entitlement, a national sales tax of the kind near-universal in Europe is inevitable.

We are now $8 trillion in debt. The Congressional Budget Office projects that another $12 trillion will be added over the next decade. Obamacare, when stripped of its budgetary gimmicks -- the unfunded $200 billion-plus doctor fix, the double counting of Medicare cuts, the 10-6 sleight-of-hand (counting 10 years of revenue and only 6 years of outflows) -- is at minimum a $2 trillion new entitlement.

It will vastly increase the debt. But even if it were revenue-neutral, Obamacare pre-empts and appropriates for itself the best and easiest means of reducing the existing deficit. Obamacare's $500 billion of cuts in Medicare and $600 billion in tax hikes are no longer available for deficit reduction. They are siphoned off for the new entitlement of insuring the uninsured.

This is fiscally disastrous because, as President Obama himself explained last year in unveiling his grand transformational policies, our unsustainable fiscal path requires control of entitlement spending, the most ruinous of which is out-of-control health care costs.

Obamacare was sold on the premise that, as Nancy Pelosi put it, "health care reform is entitlement reform. Our budget cannot take this upward spiral of cost." But the bill enacted on Tuesday accelerates the spiral: It radically expands Medicaid (adding 15 million new recipients/dependents) and shamelessly raids Medicare by spending on a new entitlement the $500 billion in cuts and the yield from the Medicare tax hikes.

Obama knows that the debt bomb is looming, that Moody's is warning that the Treasury's AAA rating is in jeopardy, that we are headed for a run on the dollar and/or hyperinflation if nothing is done.

Hence his deficit reduction commission. It will report (surprise!) after the November elections.

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. Read more here.

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look

Levy Viewed as Way to Reduce Deficits, Fund Health Reform

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families.
Read more here.

Corporate Debt Coming Due May Squeeze Credit

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.

Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings.

Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.

The apocalyptic talk is not limited to perpetual bears and the rest of the doom-and-gloom crowd.

Even Moody’s, which is known for its sober public statements, is sounding the alarm.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.

Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years, said Diane Vazza, head of global fixed-income research at Standard & Poor’s.
Read more here.

Join a TEA Party!

Tea Party progress report

FOR OUR OUT-OF-STATE SUBSCRIBERS, FIND YOUR STATE HERE


To find the PARTY near you, click Tennessee Tax Day Tea Party


In Nashville at noon the Tea Party will be held at Legislative Plaza in front of the State Capitol.  I will be attending that one if I am not tied up in committee.  I will be speaking at the Tea Party in Mt. Juliet Wednesday evening at the Charlie Daniels Park.

Wondering if you should take the time to go?

Take a look at the 2008 Pig Book Summary.  This should give you inspiration.

The 2008 Congressional Pig Book Summary gives a snapshot of each appropriations bill and details the juiciest projects culled from the complete Pig Book.  (.pdf)

Still wondering if you should  go?  Check this out:

Obama budget could bring $9.3 trillion in deficits
President Barack Obama's budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush's presidency, congressional auditors said Friday.

The new Congressional Budget Office figures offered a far more dire outlook for Obama's budget than the new administration predicted just last month — a deficit $2.3 trillion worse. It's a prospect even the president's own budget director called unsustainable.

In his White House run, Obama assailed the economic policies of his predecessor, but the eye-popping deficit numbers threaten to swamp his ambitious agenda of overhauling health care, exploring new energy sources and enacting scores of domestic programs.
Read more here

On April 15, be part of the Taxed Enough Already (TEA) party rally in your community

On the day you pay your taxes, Wednesday, April 15, join others across the country and in your hometown who will be participating in TEA party rallies in front of their city halls.  The TEA party rally will begin at 12 noon.
[NOTE: Some communities are holding their parties at other times.]

Earmarks: Online hide and go seek
Scores of House members are hiding their earmark requests in obscure corners of their official websites — sticking to the letter of their new rule while shunning its spirit.
The lawmakers are interpreting an ambiguous rule liberally, disclosing their requests as required on their official congressional webpages but avoiding any prominent display.
Under the new rule, touted by House Democrats and echoed by President Obama as a move toward a more open system of earmarking, members submitting spending requests for 2010 to the Appropriations Committee are required to create an active link on their webpages giving the details.
But the requirement to create a link allows for great disparity, from Speaker Nancy Pelosi (D-Calif.) down the line to the most junior member of the minority, in how and where those requests are displayed.
The result was a hodgepodge, with some members of each party proudly displaying their requests while many others apparently did their utmost to keep their requests out of public view.
Fullest disclosures included those made by Ways and Means Committee Chairman Charles Rangel (D-N.Y.), Majority Whip James Clyburn (D-S.C.), Rep. John Murtha (D-Pa.) — who is a notorious earmarker — and even Rep. Glenn Thompson (R-Pa.), who as the last freshman Republican to be sworn in this year is arguably the lowest-ranking member of the House.
Read more here

See this video - the momentum is growing! 

Are you fed up with a Congress and a president who:

• vote for a $500 billion tax bill without even reading it? 
  
• are spending trillions of borrowed dollars, leaving a debt our great-grandchildren will be paying?
• consistently give special interest groups billions of dollars in earmarks to help get themselves re-elected?
• want to take your wealth and redistribute it to others?
• punish those who practice responsible financial behavior and reward those who do not?
• admit to using the financial hurt of millions as an opportunity to push their political agenda?
• run up trillions of dollars of debt and then sell that debt to countries such as China?
• want government controlled health care?
• want to take away the right to vote with a secret ballot in union elections?
• refuse to stop the flow of millions of illegal immigrants into our country?
• appoint a defender of child pornography to the Number 2 position in the Justice Department?
• want to force doctors and other medical workers to perform abortions against their will?
• want to impose a carbon tax on your electricity, gas and home heating fuels?
• want to reduce your tax deductibility for charitable gifts?
• take money from your family budget to pay for their federal budget?

If so, participate in the TEA party rally, the Taxed Enough Already (TEA) party.

Bring your cell phone and call Congress and the president while attending the TEA party rally (Representative and Senators, 202-224-3121; President, 202-456-1414). Tell Every American about this effort by forwarding this invitation to your friends.  Together we can make a difference.
Read more here

By INVESTOR'S BUSINESS DAILY | Posted Wednesday, April 01, 2009 4:20 PM PT

April 1: We have to admit, we were surprised when the headline "Obama Orders Chevrolet and Dodge Out of Nascar" turned out to be an April Fools' joke. How can it be a joke when today's reality is far more extreme?

Car and Driver has nothing on the federal government. If you think we're exaggerating, just look at some of the recent days' events, each at least as outrageous as the April Fools' joke of Obama ordering Chevy and Dodge to leave Nascar, and maybe more so. They include:

• The government's stimulus efforts, as toted up by Bloomberg.com, so far total $13.8 trillion — roughly equal to our entire GDP for one year, or $45,245 for every man, woman and child.

• A U.S. president with virtually no private-sector experience fires GM CEO Rick Wagoner, a 30-year industry veteran, and forces Chrysler into a shotgun wedding with foreign carmaker Fiat.

• Democratic Rep. Barney Frank, who also has never toiled in the private sector, declares "We own AIG," and advocates sweeping government control over corporate pay and bonuses.

• The Service Employees International Union asks the White House to fire the CEO of Bank of America — and, because organized labor spent more than $100 million to get Barack Obama elected in 2008, it just might get its wish.

• The "New GM," or "Government Motors" as some call it, is told it might have to scrap half its profitable models to build what President Obama calls the "next generation of clean cars" — cars that don't yet exist, and have no proven market demand.

• Further afield, a key adviser to Secretary of State Hillary Clinton hangs up a "no vacancy" sign on the Earth, arguing that the world at 6 billion people is "overpopulated" — echoing the nutty Malthusian comments from a top British official last month that the United Kingdom's population needs to shrink by 30 million.

• Congress declares carbon dioxide, a naturally occurring gas necessary for all life, to be a poison and seeks to regulate it through a "cap-and-trade" system — a costly tax on everyone who uses energy, at a time when the global economy is in recession.

Yes, sadly, we could go on. And on.
Read more here

The number-two Democrat in the House said that over the short term, massive spending was necessary to aid the economy, despite any concerns about who we borrow from.
 
“In the short term, there is no alternative in my opinion, to borrowing money to infuse it in the economy to get out economy going,” Hoyer said.
 
As of November 2008, the People’s Republic of China was the largest single holder of U.S. debt at $681.9 billion, according to figures released by the U.S. Treasury Department. China, in fact, holds 10.8 percent of all publicly held federal debt.
 
The communist nation has increased its share of U.S. federal debt by $223 billion since November 2007 and by $95 billion since September of 2008. 
 
If China loaned the U.S. 10 percent of the money for the stimulus bill, the U.S. debt it held would climb another $80 billion to $90 billion, depending on the size of the final bill.

Read more here

Bush's Calls for Financial Reform Ignored

Monday, September 22, 2008 3:06 PM

By: Ronald Kessler

Triggering the financial implosion on Wall Street were the problems at Fannie Mae and Feddie Mac, which fostered lax lending practices and covered up their own financial deficiencies.

Going back to the beginning of his administration, President Bush warned of the problems at these institutions and the consequences if Congress did not bring them under control. Seventeen times, Bush publicly called for reform of both institutions. But Democrats and Republicans in Congress ignored the warnings and denied there were any problems. What follows is an administration chronology of efforts to achieve reform:

2001

April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO's review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)

Read more here

Recovery Rebates and Economic Stimulus for the American People Act of 2008 - Vote Passed (81-16, 3 Not Voting)

The bipartisan economic stimulus package passed the Senate last week, with the chamber opting to amend this House bill rather than pass its own.

Sen. Lamar Alexander voted YES......send e-mail or see bio
Sen. Bob Corker voted NO......send e-mail or see bio

The hottest buzzword of the day is "economic stimulus." Virtually every politician and pundit agrees the government must act quickly to forestall a recession by increasing consumer spending. President Bush and the Democratic leadership in the House quickly got together on a $150 billion package that also includes tax incentives for business investment.

The Republican and Democratic presidential contenders back "stimulus" too. (Ron Paul is the exception.)
 

Any government program that wins the support of the political class and media commentators makes me suspicious.

The economy does seem to be slowing, and there was a net loss of jobs in January. The housing industry is sluggish and the credit market tight because of the subprime-mortgage problems. So, to "get the economy moving," the anointed experts want the government to quickly put cash in our hands. When we rush out to spend it, the story goes, the economy will get out of the ditch.

Interesting theory, but it's hardly new, and it's been demolished many times before by free-market economists. One problem, which George Mason University economist Russell Roberts observed, is that the money that will allegedly be "injected" into the economy is already in the economy. So how can it be a stimulus?

"The politicians are always going to inject some amount of money into the hands of consumers and into the economy, like a doctor giving a lifesaving blood transfusion," Roberts says. "But where does the economic injection come from? It has to come from inside the system. It's not an outside stimulus like the chest paddles or the transfusion. It means taking money from someone or somewhere inside the system and giving it to someone else."

The federal government is in the red. Bush's new budget has a $400 billion deficit. There's no lockbox with $100 billion in it. So to give everyone a tax rebate, the government will have to borrow more money. But that only moves the cash from one part of the economy to another. As Roberts says, "It's like taking a bucket of water from the deep end of a pool and dumping it into the shallow end."

Unless the government cuts spending, which the theory says would neutralize the stimulus, the only other way to get the money will be to raise taxes or to have the Fed create money -- inflation -- which would raise the price of everything.

How will that stimulate anything but the politicians' short-term approval ratings?

Supporters of the stimulus only consider it's "seen" affects. If government takes or borrows money from Jones and gives it to Smith, Smith's spending will be visible for all to see. Not so visible is the "unseen" affect: What Jones would have done with the money but didn't because it was transferred to Smith.
 

Economists call this the "broken window fallacy." In the 19th century, French economist Frederic Bastiat illustrated it with the story of a boy who breaks a shop window. At first the townspeople lament the loss, but then someone points out that the shopkeeper will have to spend money to replace the window. What the window maker earns, he will soon spend elsewhere. As that money circulates through town, new prosperity will bloom.
 

***********for remainder, go to***********
http://townhall.com/columnists/JohnStossel/2008/02/13/stimulating_nonsense