A VAT Is Coming

That is, a value-added tax. This is a tax applied to every transfer of goods and services between businesses, and between businesses and consumers.

Charles Krauthammer predicted it on Fri 26 Mar:

As the night follows the day, VAT follows health-care reform.

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 $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 six years of outflows) — is at minimum a $2 trillion new entitlement.

Paul Volcker, former Fed chief and now advisor to President Obama, helps show Krauthammer’s prediction is accurate:

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

… he said getting entitlement costs and the U.S. budget deficit under control may require such moves. “If at the end of the day we need to raise taxes, we should raise taxes,” he said.

James Pethokoukis agrees on its inevitability:

Now that America has gone French (and German and British) with universal healthcare, expect Washington to eventually propose a European-style, value-added consumption tax to pay for it -- as well as the rest of the historic rise in federal spending.

For Washington insiders, it’s a matter of “when” not “if.” Politicians and economists I chat with from the White House to Capitol Hill to the Federal Reserve think a VAT inevitable. Healthcare reform has only hardened that consensus. Spending cuts to pay for expanded coverage may not happen. Either way, the budget numbers scream for action. Annual federal spending as a share of GDP will likely outpace revenue by at least six percentage points for years to come. Trillion-dollar deficits the norm.

VAT proponents assume political intransigence without a financial crisis to spur action, just as market chaos helped get the $700 billion bank rescue passed in 2008.

Now that we have the so-called health care reform, deficits are going to expand enormously, and will stay permanently higher.

When the next financial crisis hits, whether related to the so-called health care reform or related to the uncorrected fundamentals that caused the current recession, the VAT will be posed as the fiscally responsible thing to do so “we” can pay for “our” spending. It will be in addition to the income tax, not in place of the income tax. The VAT code will subject to gaming by politicians on behalf of their preferred corporations and industries, made possible in part by the opaqueness of the VAT to voters.

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