Ready on not, here comes the value-added tax

A national sales tax, once unthinkable here, is a natural next step in Obama’s America

April 08, 2010|By Ron Smith

Paul Volcker, the former Federal Reserve chairman and current Obama economic adviser, said this week that our esteemed rulers must consider a European-style value-added tax in order to raise the money needed to bring deficits under control. Appearing at a New York Historical Society event, Mr. Volcker also said a carbon or other energy-related tax might become necessary for the same reason.

There you have it: What was once unthinkable in this country is now likely to be imposed on us because — well, because the nation's balance sheet is crimson from top to bottom. The value-added tax is a sales tax imposed on every level of a product's path from production to consumption. European Union law mandates it be no lower than 15 percent. It's a national sales tax masquerading under a more benign moniker. It's a favorite tool of socialist governments, and its imposition here would remove whatever lingering doubt that remains as to whether we are a socialist state.

The increasingly desperate nature of our public finances makes this tax one that the politicians will likely be unable to resist, under the rubric that it's something that must be done to stave off disaster. It has its advantages from the point of view of those who want government to keep growing to the sky. Since it is imposed mainly during various stages of manufacture, the government gets to collect the money owed under it in a very predictable and hard to scam manner.

What's wrong with this tax? We can begin with the fact that it is the very essence of a regressive tax in that it makes people with lesser incomes pay a far higher percentage of what they have under it than do people with higher incomes. Also, at a time when more and more Americans are aware of and opposed to the relentless growth of government, this is the tax that beyond all others provides the fuel for government gigantism, in part because it is hidden in the price of goods. It is what has made possible the "social democracies" in Europe and the U.K.

Which brings us to a problem of timing. The Europeans began this kind of taxation decades ago and are now facing, even with the VAT, the same kind of unsustainable public debt that we will be told will be solved by its adoption here. The tea party movement, so loathed by the establishment, is fed by a widely held view among middle-class Americans that government is totally out of control, is grossly obese and must go on a strict diet and not be fed untold billions of dollars more from the pockets of the stressed-out consumer.

Our economy has been based on consumer spending, much more so than the economies of nations like Germany and Japan that actually manufacture value-added goods for export. So to inflict a national sales tax on us is to further cripple this nation's ability to climb out of the Great Recession. Yet there is a mania among the ruling elite to wage war on consumption, and this would be one way to dampen it. Combine it with Mr. Volcker's other comment about energy taxes being needed down the road, and one can see the puzzle pieces being assembled and a picture emerging: It is one of achieving financial salvation through taxation.

You may or may not know that the president's 2010 budget relies heavily on so-called back-door taxes on the middle class, achieved by letting targeted tax provisions enacted in 2001 expire at year's end. And despite the apt observation of the author Robertson Davies that "There is no nonsense so gross that society will not, at some time, make a doctrine of it and defend it with every weapon of communal stupidity," the idea of spending and taxing ourselves back to prosperity will not be embraced by the middle class, upon whose compliance government depends. It's more likely that it will be resisted mightily and will further feed the growth not of government but of the anti-government sentiment so feared by the establishment and its media enthusiasts.

Ron Smith's column appears Fridays in The Baltimore Sun. His e-mail is rsmith@wbal.com.

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