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News Link • Economy - Economics USA

Will the New Debt Commission Back a Value Added Tax?

Often installed with great fanfare as being debt busters in Europe, a VAT didn’t cure Europe’s debt problems—spending and debt only continued to grow under VATs there. And so did Europe’s VATs, which started at 5% in the ‘60s and early ‘70s, and now average 18%. Also, a VAT is the most micro form of taxation on consumption that needs the most macro form of law enforcement, an even bigger, all consuming IRS. A VAT is similar to a national retail sales tax but is collected at every stage of business production until its entire burden ultimately falls on the consumer. However, the debt commission could provide political cover to a middle class tax hike in the form of a VAT, which would hit the lower brackets hard. A VAT would undercut President Barack Obama's promise not to raise middle class taxes—even though Vice President Joseph Biden said earlier this year that President Obama is “open to listening” to a VAT. House Speaker Nancy Pelosi (D-Calif.) has said that a VAT is “on the table.” The debt commission co-chairman Erskine Bowles said, “There are many good arguments that you can make for a value-added tax,” Republican Rep. Paul Ryan’s fiscal “road map” includes a VAT. The New York Times reports that the White House ran numbers on a 5% VAT. A 5% VAT would cost US households an estimated $300 billion. But economists fear a VAT would slow GDP and job growth, as it has in Europe.

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