July 2010: Government Affairs


Government Affairs

Tax Reform Ideas: Vanquish the VAT

As someone who has run a manufacturing company, I’ve seen the many stages of production that go into a finished product. I understand how taxing each stage of production will add to the end cost of the product, and how that will kill jobs and increase costs for families. That’s why I’m opposed to implementing a European-style value-added tax (VAT).

In simple terms, a VAT is an invisible type of national sales tax. Instead of being collected at the cash register, it is imposed on the value added at each stage of the production process. The VAT dramatically adds to the cost of everything from food and clothing to housing. For example, under a 15 percent VAT – the minimum standard amount allowed for members of the European Union – a $3.70 gallon of milk would sell for $4.30; a $2,000 MacBook Pro would cost $2,380. A 15 percent VAT would pump nearly $750 billion into the government’s coffers, taking thousands from every American family and raising production costs for manufacturers.

Adding a VAT to our current income tax code has been a hot topic among both the Obama Administration and Democrat leaders in Washington, D.C. Paul Volcker, the head of President Barack Obama’s Economic Recovery Advisory Board, recently said that a tax increase of some sort might be needed to deal with our growing record federal deficits and that a VAT should be considered. House Speaker Nancy Pelosi recently said that a VAT should be “on the table,” and President Obama himself recently said a VAT was a “novel” idea as a means to raise revenue. Novel? Perhaps. Right? Absolutely not.

What Mr. Volcker, Speaker Pelosi, and President Obama fail to address is the real issue: the unsustainable government spending by leaders in Washington.

Washington, D.C., has a spending problem, not a revenue problem. Instead of searching for ways to increase taxes and costs for taxpayers who are already enduring difficult economic times, Congress should be focused on reining in runaway government spending. We should not ask Americans to shoulder the burden of Washington’s wasteful spending, especially when Washington isn’t willing to make sacrifices in the first place.

The need to cut spending couldn’t be clearer. Since taking office 15 months ago, Washington Democrats have raised the debt from $10.6 trillion to $12.9 trillion (about $42,000 for every man, woman and child). In just two years, our national debt will be bigger than the size of our entire American economy (about $15 trillion).

The European experience with its VAT shows that, rather than closing deficits, a VAT only fuels new spending, taxes and debt. In the last decade, Greece ran a 5 percent annual budget deficit, despite having a 19 percent VAT. Today, Greece is bankrupt, with its national debt a full 25 percent larger than its economy. Greece’s response to this debt crisis has been to hike its VAT to 21 percent in March and 23 percent in May, with no end in sight.

American families make hard spending decisions every day to make ends meet, and so must the federal government. The last thing struggling families need is a new, invisible tax that will raise their costs of living, kill more manufacturing jobs and threaten our economic recovery.


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