Pete du Pont: The VAT Would be Horrible for America
[Pete du Pont is the former governor of Delaware.]
A cultural battle is under way in America, a battle between, in columnist Michael Barone's, words, "the culture of dependence and the culture of independence."
The culture of dependence is the belief by American liberalism that government can make better decisions for people than people can make for themselves. The U.S. has now created the largest government spending increases, takeovers, and regulation expansion in the past 65 years, since the end of World War II. It is going to get even worse, as the President's budget plans to spend $45 trillion in the next 10 years, a 70% increase in spending over the last 10. Estimated tax revenues will only be $35 trillion--or maybe even less if the current economic difficulty lasts for a while. The Tax Foundation estimates that we would have to more than double current income tax rates for everyone to balance the 2010 budget, or increase the rates by 50% or more to balance the budgets over the next 10 years.
To put America's new spending policy into perspective, the Heritage Foundation's Brian Riedl reports that federal spending in the 1980s and 1990s remained flat--about $21,000 per household. During George W. Bush's administration, the figure rose to $25,000 per household, and President Obama's budget plans to spend $32,000 per household by 2019. And that number is before all the baby-boomers retire and another $10,000 or so in Social Security, Medicare and Medicaid costs will be spent in addition....
So what to do? Reducing federal spending is the most sensible approach, but Congress is unlikely to do it. It is pretty easy to argue that this administration's necessary course will instead be to hike taxes, and not just higher income tax rates will be on the table. We recently saw the White House preference when economic adviser and former Federal Reserve chairman Paul Volker said, "If at the end of the day we need to raise taxes, we should raise taxes," suggesting what we should do is enact a value-added Tax, which he believes is "not as toxic an idea" as it once was....
The VAT is an invisible excise tax added to each phase of a product's production, really a national sales tax, with the cost of the total VAT ultimately paid by the final purchaser, regardless of his income or wealth. A VAT would likely contain some exemptions--for food, clothing, medicine and housing costs--but it would impose taxes on most other daily purchases, gasoline, televisions, automobiles, computers, airfares, cell phones, refrigerators, newspapers and restaurant foods, for example.
The VAT has been in use in the European countries since the late 1960s, and has had a strong, negative economic influence. Before the European VATs were put into effect, the average EU tax burden was 28% of gross domestic product, compared with the 25% in the U.S. By 2006 with the VATs EU average tax burden was 40% compared with 28% in America.
Average European government spending was about 30% of GDP when the VATs were instituted in the late 1960s. Fast forward to today, and we see European government spending has grown more than 50% and now hits 47% of GDP. And European government debt in 2005 was 50% of GDP, compared with under 40% in America....
Read entire article at WSJ
A cultural battle is under way in America, a battle between, in columnist Michael Barone's, words, "the culture of dependence and the culture of independence."
The culture of dependence is the belief by American liberalism that government can make better decisions for people than people can make for themselves. The U.S. has now created the largest government spending increases, takeovers, and regulation expansion in the past 65 years, since the end of World War II. It is going to get even worse, as the President's budget plans to spend $45 trillion in the next 10 years, a 70% increase in spending over the last 10. Estimated tax revenues will only be $35 trillion--or maybe even less if the current economic difficulty lasts for a while. The Tax Foundation estimates that we would have to more than double current income tax rates for everyone to balance the 2010 budget, or increase the rates by 50% or more to balance the budgets over the next 10 years.
To put America's new spending policy into perspective, the Heritage Foundation's Brian Riedl reports that federal spending in the 1980s and 1990s remained flat--about $21,000 per household. During George W. Bush's administration, the figure rose to $25,000 per household, and President Obama's budget plans to spend $32,000 per household by 2019. And that number is before all the baby-boomers retire and another $10,000 or so in Social Security, Medicare and Medicaid costs will be spent in addition....
So what to do? Reducing federal spending is the most sensible approach, but Congress is unlikely to do it. It is pretty easy to argue that this administration's necessary course will instead be to hike taxes, and not just higher income tax rates will be on the table. We recently saw the White House preference when economic adviser and former Federal Reserve chairman Paul Volker said, "If at the end of the day we need to raise taxes, we should raise taxes," suggesting what we should do is enact a value-added Tax, which he believes is "not as toxic an idea" as it once was....
The VAT is an invisible excise tax added to each phase of a product's production, really a national sales tax, with the cost of the total VAT ultimately paid by the final purchaser, regardless of his income or wealth. A VAT would likely contain some exemptions--for food, clothing, medicine and housing costs--but it would impose taxes on most other daily purchases, gasoline, televisions, automobiles, computers, airfares, cell phones, refrigerators, newspapers and restaurant foods, for example.
The VAT has been in use in the European countries since the late 1960s, and has had a strong, negative economic influence. Before the European VATs were put into effect, the average EU tax burden was 28% of gross domestic product, compared with the 25% in the U.S. By 2006 with the VATs EU average tax burden was 40% compared with 28% in America.
Average European government spending was about 30% of GDP when the VATs were instituted in the late 1960s. Fast forward to today, and we see European government spending has grown more than 50% and now hits 47% of GDP. And European government debt in 2005 was 50% of GDP, compared with under 40% in America....